Escolar Documentos
Profissional Documentos
Cultura Documentos
A letter of credit is any arrangement, however named or described, whereby a bank, acting
upon the request of its client or on its own behalf, agrees to pay another against stipulated
documents, provided that the terms of the credit are complied with.
i. The negotiating bank becomes a party to the l/c transaction after it buys the draft
drawn by the beneficiary and becomes the holder thereof.
ii. As holder, it has the right to payment from the bank primarily liable on the draft
(either the issuing bank or the confirming bank). If the party primarily liable on the
l/c refuses to honor the draft, the negotiating bank has the right to proceed against
the drawer thereof.
Doctrine of Independence
By this doctrine, the relationships among: a) the issuing bank and the beneficiary; b ) the
issuing bank and the applicant; and, c ) the beneficiary and the applicant while interrelated
are separate, distinct and independent of one another.
Thus, in determining the obligation of the issuing bank to pay the beneficiary, the issuing
bank has no obligation to verify whether or not the main contract has been fulfilled or not.
The issuing bank is liable to pay the beneficiary upon the latter’s submission of the
stipulated documents and compliance with the terms of the credit regardless of any breach
of contract by the beneficiary to the applicant of the l/c. Conversely, the right of the issuing
bank to obtain reimbursement from the applicant of the l/c is not adversely affected by the
non-fulfillment by the beneficiary of its obligation to the applicant.
Article 17 of UCP 400 explains that under this principle, an issuing bank assumes no liability
or responsibility "for the form, sufficiency, accuracy, genuineness, falsification or legal
effect of any documents, or for the general and/or particular conditions stipulated in the
documents or superimposed thereon..." Thus, as long as the proper documents are
presented, the issuing bank has an obligation to pay even if the buyer should later on refuse
payment. To allow issuing bank to refuse to honor the Letter of Credit simply because it
could not collect first from the buyer is to countenance a breach of the Independence
Principle. (The Hongkong & Shanghai Banking Corporation,
Limited, Petitioner, V. National Steel Corporation And Citytrust Banking
Corporation (Now Bank Of The Philippine Islands); G.R. No. 183486, February 24,
2016)
SMC accredited B as one its dealers authorized to sell SMC beer products. As
required by the terms of the dealership, B obtained a credit line from ABC Bank and
that in case of purchase by B from SMC, the latter may draw on the credit line and
such drawdown shall be considered loan availments on the part of B. The obligation
of B under the dealership agreement secured by a letter of credit issued by ABC
Bank. B failed to pay certain purchase orders. SMC filed an action for collection
against B and ABC Bank. The Court rendered judgment finding B solely liable to pay
SMC and omitted by inadvertence to insert in its decision the phrase “without
prejudice to the decision that will be made against ABC, may the Bank avoid
responsibility on this ground?
No. The obligation of B to pay under its agreement with SMC is distinct and independent
from the right of SMC to draw on the letter of credit. Under the independence principle,
the seller or beneficiary is assured of prompt payment independent of any breach of the
main contract and precludes the issuing bank from determining whether the main contract
is actually fulfilled or not.
The fraud exception principle is an exception to the doctrine of independence. Under the
fraud exception principle, the beneficiary may be enjoined from collecting on the letter of
credit if the following elements are present: a) there is fraud on the part of the beneficiary,
b ) fraud must be in relation to the independent purpose or character of the credit, c )
unless the beneficiary is restrained, the applicant shall suffer grave and irreparable injury.
For the fraud exception principle to serve as an exception to the doctrine of independence,
the fraud must not be in relation to the performance of the main contract but in relation
to the independent purpose or character of the credit.
Under this doctrine, the documents that the beneficiary should submit to the issuing bank
or confirming bank must strictly conform to the documents stipulated. If there is
Trust receipt is a transaction between the entruster and the entrustee whereby the
entruster who owns or holds absolute title or security interest over certain goods,
documents and instruments, releases the same to the possession of the entrustee upon the
latter’s execution and delivery of a trust receipt wherein the entrustee binds himself to hold
the designated goods, documents and instruments in trust for the entruster and to sell or
otherwise dispose of the goods or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or to
return them to the entruster in case of non- sale.
No. In a trust receipt transaction, the entrustee has the obligation to deliver to the
entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. There are, therefore, two obligations in a trust receipt transaction:
the first refers to money received under the obligation involving the duty to turn it over to
the owner of the merchandise sold, while, the second refers to the merchandise received
under the obligation to "return" it to the owner. BSP can not foreclose the real estate
mortgage that secures the loan under a promissory note if what was assigned to BSP is the
PN with Trust Receipt Agreement, not the REM. (Bangko Sentral Ng Pilipinas V.
Agustin Libo-On; G.R. No. 173864, November 23, 2015)
A letter of credit is any arrangement, however named or described, whereby a bank, acting
upon the request of its client or on its own behalf, agrees to pay another against stipulated
documents, provided that the terms of the credit are complied with.
No. only the failure of the entrustee to deliver the proceeds of the sale of the goods or
instruments subject of the trust receipt up to the extent of the amount owing to the
entruster or to return the goods. Such violation constitutes estafa. Under recent
jurisprudence, however, the penal sanction under the trust receipts law does not apply in
case the goods are not intended for sale or resale or to manufacture items intended for sale
or resale, such as when they are for actual use.
1. If the entrustee is already the owner or in possession of the goods before delivery of the
loan and execution of the trust receipt agreement, the transaction shall be considered
a simple loan even though the parties may have denominated the agreement as one of
trust receipt. To be in the nature of the trust receipt, the entruster should have financed
the acquisition or importation of the goods. The funds should have been delivered
before or simultaneously with delivery of the goods.
2. If the goods subject of the trust receipt are not intended for sale or resale
3. Sale of goods by a person in the business of selling goods, for profit, who at the outset
of the transaction has as against the buyer general property rights in such goods and
the seller agrees to hold the proceeds of the sale of such goods to his creditor under a
supposed trust receipt transaction.
D owns 100 sacks of rice which he sold to B. D obtained a loan from C secured by
the proceeds of sale of the rice from B which D agrees to hold in trust for C. D and
C denominated their transaction as one of trust receipt. Is such transaction a trust
receipt within the ambit of the trust receipt law?
No. There is no trust receipt, notwithstanding the label, if goods offered as security for loan
accommodation are goods owned and sold by the seller who, at the outset of the
transaction, has against the buyer general property rights over such goods.
1. File a criminal action for estafa in case of failure of the entrustee to deliver the
proceeds of the sale of the goods under trust receipt up to the extent of his obligation
to the entruster. The civil action may be instituted in the criminal action or
separately filed independently of the criminal action. The criminal action is based
on ex-delictu for violation of the law while the civil action is based on ex-contractu
for violation of the trust receipt agreement.
2. Cancel the trust and take possession of the goods at any time upon default of the
entrustee. After repossession, the entruster may sell the goods upon at least five day
notice to the entrustee and apply the proceeds in payment of the obligation. The
entrustee is liable for deficiency or entitled to excess, if any.
What are the remedies available to the warehouseman to enforce his lien?
The remedies available to the warehouseman to enforce the lien are : 1 ) refuse to deliver
the goods until his lien is satisfied; 2 ) to sell the goods and apply the proceeds to the value
of the lien; 3 ) by other means allowed by law to a creditor against his debtor for the
collection from the depositor of all charges and advances which the debtor contracted with
the warehouseman; or such remedies allowed by law for the enforcement of a lien against
personal property.
BANKING LAWS
It is settled that "the power and authority of the Monetary Board to close banks and
liquidate them thereafter when public interest so requires is an exercise of the police power
of the State. Police power, however, is subject to judicial inquiry. It may not be exercised
arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory,
whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal
protection clauses of the Constitution." Field Code Changed
Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make Field Code Changed
an independent determination of whether a bank may still be rehabilitated or not. As
expressly stated in the afore-cited provision, once the receiver determines that
rehabilitation is no longer feasible, the Monetary Board is simply obligated to: (a) notify in
writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with
liquidation. (Apex Bancrights Holdings, Inc., Lead Bancfund Holdings, Et
Al., vs. Bangko Sentral Ng Pilipinas and Philippine Deposit Insurance Corporation;
G.R. No. 214866. October 2, 2017)
A. Closure
The period during which the bank cannot do business due to insolvency is not a fortuitous
event, unless it is shown that the government's action to place a bank under receivership
or liquidation proceedings is tainted with arbitrariness, or that the regulatory body has
acted without jurisdiction. (Spouses Jaime and Matilde Poon vs. Prime Savings Bank
Represented By The Philippine Deposit Insurance Corporation As Statutory
Liquidator; G.R. No. 183794, June 13, 2016)
B. Receivership
The insolvent bank's legal personality is not dissolved by virtue of being placed under
receivership by the Monetary Board. It must be stressed here that a bank retains its juridical
personality even if placed under conservatorship; it is neither replaced nor substituted by
the conservator who shall only take charge of the assets, liabilities and the management of
C. Liquidation
Inability to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community; or has sufficient realizable assets, as
determined by the Bangko Sentral, to meet its liabilities; or cannot continue in business
without involving probable losses to its depositors or creditors; or willful violation of a
cease and desist order that has become final, involving acts or transactions which amount
to fraud or a dissipation of the assets of the institution. (The Consolidated Bank and
Trust Corporation v. Court Of Appeals, United Pacific Leasing and Finance
Corporation; G.R. No. 169457, 19 October 2015)
A conservator takes charge of the assets, liabilities and management of the bank in distress
whereas a receiver shall immediately gather and take charge of all the assets and liabilities
of the institution, administer the same for the benefit of its creditors, and exercise the
general powers of the receiver under the Rules of Court.
A conservator has one year from appointment to rehabilitate the bank whereas the receiver
has 90 days to do so, otherwise, they shall recommend to the MB the liquidation of the
bank.
Resolution of the BSP issued in the exercise of its quasi-judicial functions like
imposing sanctions for violations of banking laws or regulations or appointing a
receiver or conservator or closing a bank is not subject to declaratory relief.
RTC, acting as a liquidation court, has no power to overrule the findings of the MB. It can
not pass upon the issue of whether or not the order of closure is valid. In fact, the
liquidation court’s authority is limited to adjudicating disputed claims against the
institution, assisting the enforcement of individual liabilities of the stockholders, directors
and officers and deciding on other issues to implement the liquidation plan. The exclusivity
of the MB’s power is highlighted by the absence of appeal from its actions under section 30
of RA 7653. MB’s actions are final and executory and can only be set aside by filing a petition
for certiorari within 10 days from receipt by the bank’s board of directors of the MB’s order
directing the receivership, liquidation or conservatorship ( Yuseco vs PDIC, as the
statutory liquidator of the Unitrust Development Bank; GR No. 217899, September
28, 2016.)
All notes and coins issued by BSP shall be fully guaranteed by the government and shall be
legal tender for all debts, both public and private. However, with respect to coins, they have
legal tender power only for the following amounts:
a. one peso coins and coins of higher peso value are legal tender for obligations not
exceeding P 1,000.
b. Twenty five cents and coins of lower value are legal tender for obligations not
exceeding P 100
Notes and coins called in for replacement shall remain legal tender for a period of one year
from date of call. After this period, they shall cease to be legal tender but during the
following year or such longer period as the MB may determine, they may be exchanged at
par. After expiration of this latter period, the notes and coins which have not been
exchanged shall cease to be the liability of the BSP.
Laws on secrecy of bank funds Formatted: Font: (Default) Constantia, Bold, Font
color: Black, English (Philippines), Condensed by 0.1
pt, Kern at 18 pt, Border: : (No border)
Republic Act 1405 which expressly provides that “all deposits of whatever nature with banks Formatted: Border: Top: (No border), Bottom: (No
or banking institutions … are hereby considered as of an absolutely confidential nature and border), Left: (No border), Right: (No border), Between
may not be examined, inquired or looked into by any person, government official, bureau or : (No border), Bar : (No border)
The General Banking Act which provides that “[n]o director, officer, employee, or agent of
any bank shall … [w]ithout order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in the custody of the
bank belonging to private individuals, corporations, or any other entity …” (Section 55.1(b)).
May the bank disclose information about Philippine currency bank deposits
pursuant to a writ of garnishment?
The Bank may disclose information about Philippine currency bank deposits pursuant to a
writ of garnishment. The disclosure in this case is only incidental to the execution process.
Foreign currency deposits, however, are exempt from garnishment or any court or
administrative process. However, the exemption of foreign currency deposits from court
order and administrative processes cannot be invoked in case of violation of the anti-money
laundering law, or if property or funds are related to financing of terrorism or acts of
terrorism or by a person who is not the owner of the FCDU account or against a co-owner
of the account or by a transient for any purpose contrary to that intended by law, which is
to encourage foreign currency deposits to beef up our international reserves.
The inquiry into bank deposits allowable under RA 1405 must be premised on the fact that
the money deposited in the account is itself the subject of the action. Where the
information filed in court charged respondent with qualified theft, the subject matter of
litigation is the money alleged to have been stolen by the respondent. Thus, where the
subject matter of the testimonial and documentary evidence is not at all relevant to the
case, the suppression of such testimony is valid, otherwise, it constitutes an attempt by the
prosecution at an impermissible inquiry into a bank deposit account, the privacy and
confidentiality of which is protected by law. (BSB Group Inc vs. Go; GR No. 168644,
February 16, 2010)
Republic Act 6426 is a special law designed especially for foreign currency deposits in the
Philippines. RA 1405 which covers all bank deposits in the Philippines is the general law
which does not nullify the special law on foreign currency deposits. The surety which issued
a bond to secure the obligation of the principal debtor can not inquire into the foreign
currency deposits of the debtor even if its purpose is to determine whether or not the loan
proceeds were used for the purpose specified in the surety agreement. The foreign currency
deposits can not be examined without the consent of the depositor. The subpoena issued
by the bank should be quashed because foreign currency deposits are not subject to court
order except for violation of the anti-money laundering law. (GSIS vs. Court of Appeals;
GR 189206, June 8, 2011)
Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits provides for exceptions
when records of deposits may be disclosed. These are under any of the following instances:
(a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order
of a competent court in the case of bribery or dereliction of duty of public officials or, (d)
when the money deposited or invested is the subject matter of the litigation, and (e) in
cases of violation of the Anti-Money Laundering Act, the Anti-Money Laundering Council
may inquire into a bank account upon order of any competent court. The Joint Motion to
Approve Agreement executed by the parties on waiver of confidentiality of its bank deposits
does not bind the depositor who was not a party and signatory to the said agreement.
(Doña Adela Export International, Inc. vs. Trade And Investment Development
Corporation; G.R. No. 201931, February 11, 2015)
NB. Foreign currency deposits may also be examined in the following cases : a ) if the
foreign currency account is used to commit or facilitate terrorism in which case, the AMLC
may look into foreign currency deposit even without a court order ( RA 10168 ); b ) if the
owner of the account is a foreign transient who committed a crime to prevent injustice and
for equitable grounds (Salvacion vs. Central Bank 278 SCRA 27 ); when a foreign currency
What is a BANK?
A bank is an entity engaged in the lending of funds obtained from the public in the form of
deposits.
A transaction involving not a loan but purchase of receivables at a discount within the
purview of investing, reinvesting, or trading in securities which an investment company
may perform is not banking. What is prohibited is for investment company to lend funds
obtained from the public through receipts of deposit which is a banking function.
A bank obtains funds from the public in the form of deposit while quasi-banks refer to
entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relending or
purchasing of receivables. Only deposits are insured with PDIC. Funds obtained by quasi-
bank are not insured with PDIC.
Bank Liabilities
A bank is liable to innocent third persons where representation is made in the course of its
normal business by an agent like a Branch Manager, even though such agent is abusing his
authority. The certification of the branch manager that loan has been available in favor of
a client and that such loan proceeds were earmarked for a transaction is not a contract of
guaranty covered by the prohibitions in the GBL. (Games and Garments Developers,
Inc. V. Allied Banking Corporation; G.R. No. 181426, 13 July 2015)
What are the limitations on the authority of the bank to grant loan and security for
such loan?
What are the rules governing transactions where DOSRI may incur contractual
obligation with their banks?
No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall become a guarantor,
indorser or surety for loans from such bank to others, or in any be an obligor or incur any
contractual liability to the bank except with the written approval of at least majority of all
the directors of the bank excluding the director concerned. The required approval shall be
entered upon the records of the bank and a copy of such entry shall be transmitted
forthwith to the appropriate supervising and examining department of BSP.
The outstanding loans, credit accommodations and guarantees which a bank may extend
to the DOSRI shall be limited to an amount equivalent to their respective unencumbered
deposits and book value of their paid-in capital contribution to the Bank.
Loans which are considered non-risk, as well as loans in the form of fringe benefits under
a fringe benefit program duly approved by BSP are excluded from the limits.
It is an all-embracing clause in a real estate mortgage agreement to secure not only the
amount indicated on the mortgage instrument, but also the mortgagor’s past and future
obligations. It operates as an accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra-services, recording fees, etc.
Can foreign banks participate in the foreclosure of real estate? Formatted: Font: (Default) Constantia, Bold, Font
color: Black, English (Philippines), Condensed by 0.1
pt, Kern at 18 pt, Border: : (No border)
On July 21, 2014, Republic Act No. 10641 was enacted amending Republic Act No. 7721, to Formatted: Normal, Level 1
further liberalize the entry of foreign banks in the Philippines.
The new law, in its Section 6, now allows foreign banks to bid and take part in the foreclosure
of real estate that were mortgaged to them. It provides that “foreign banks which are
authorized to do banking business in the Philippines through any of the modes of entry
under Section 2 hereof shall be allowed to bid and take part in foreclosure sales of real
property mortgaged to them, as well as to avail of enforcement and other proceedings, and
accordingly take possession of the mortgaged property, for a period not exceeding five (5)
years from actual possession.” The law further provides that in no event “shall title to the
property be transferred to such foreign bank. In case said bank is the winning bidder, it shall,
during the said five (5)-year period, transfer its rights to a qualified Philippine national,
without prejudice to a borrower’s rights under applicable laws.
If the following elements are present, the one year redemption period shall be reduced to
three months from foreclosure sale or registration of the sale, whichever comes earlier.
A. The mortgagor is a juridical person
B. The mortgagee is a bank, quasi-bank or trust entity
C. The mode of foreclosure is extra-judicial
Is the reduced redemption period extended if the bank assigned its interest in the
mortgage to a non-banking institution?
The shortened period of redemption provided in Section 47 of R.A. No. 8791 serves as
additional security and protection to mortgagee-banks in order for them to maintain a
solvent and liquid financial status. The period is not extended by the mere fact that the
bank assigned its interest to the mortgage to a non-banking institution because the
assignee merely steps into the shoes of the mortgagee bank and acquires all its rights,
interests and benefits under the mortgage-including the shortened redemption period.
Moreover, to extend the redemption period would prejudice the ability of the banks to
quickly dispose of its hard assets to maintain solvency and liquidity. (White Marketing
Development Corporation, Petitioner, - Versus - Grandwood Furniture &
Woodwork, Inc., Respondent; G.R. No. 222407, Second Division, November 23, 2016)
A loan transaction that does not comply with the rules on DOSRI and/or Single
Borrower’s limit is valid but without prejudice to criminal prosecution against the
parties responsible for the violation.
Who are the covered institutions/persons under the Anti-Money Laundering law?
“Notwithstanding the foregoing, the term ‘covered persons’ shall exclude lawyers
and accountants acting as independent legal professionals in relation to information
concerning their clients or where disclosure of information would compromise
client confidences or the attorney-client relationship: Provided, That these lawyers
and accountants are authorized to practice in the Philippines and shall continue to
be subject to the provisions of their respective codes of conduct and/or professional
responsibility or any of its amendments.”
1. Customer identification
2. Record keeping (records should be kept and safely stored for five years from date
of the transaction)
3. Reporting of covered and suspicious transactions
Money laundering is a crime whereby the proceeds of an unlawful activity are transacted
thereby making them appear to have originated from legitimate sources. It is committed
by the following:
Money laundering is committed by any person who, knowing that any monetary
instrument or property represents, involves, or relates to the proceeds of any unlawful
activity:
“(b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary
instrument or property;
“(c) conceals or disguises the true nature, source, location, disposition, movement or
ownership of or rights with respect to said monetary instrument or property;
“(e) aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in paragraphs (a), (b) or (c) above; and
“(f) performs or fails to perform any act as a result of which he facilitates the offense
of money laundering referred to in paragraphs (a), (b) or (c) above.
Money laundering is also committed by any covered person who, knowing that a covered
or suspicious transaction is required under this Act to be reported to the Anti-Money
Laundering Council (AMLC), fails to do so.”
For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to
show specific facts and circumstances that provide a link between an unlawful activity or a
money laundering offense, on the one hand, and the account or monetary instrument or
property sought to be examined on the other hand. (Republic of the Philippines,
Represented by the Anti-Money Laundering Council v. Jocelyn I. Bolante, Et Al.;
G.R. No. 186717, April 17, 2017, Sereno)
Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into
certain bank deposits and investments does not violate substantive due process, there
being no physical seizure of property involved at that stage. It is the preliminary and actual
seizure of the bank deposits or investments in question which brings these within reach of
the judicial process, specifically a determination that the seizure violated due process.
SPCMB's constitutional right to procedural due process is likewise not violated by the ex-
parte application and inquiry by the AMLC into certain bank deposits and investments.
AMLC does not possess quasi-judicial powers and hence, it has no adjudicatory power.
AMLC's investigation of money laundering offenses and its determination of possible
money laundering offenses, specifically its inquiry into certain bank accounts allowed by
court order, does not transform it into an investigative body exercising quasi-judicial
powers.
1. In the case of Rep. of the Phils. v. Hon. Judge Eugenio, Jr., et al. (Eugenio), the court laid
down the following principle:
a. The Constitution did not allocate specific rights peculiar to bank deposits;
b. The general rule of absolute confidentiality is simply statutory, i.e. not specified in
the Constitution;
c. Exceptions to the general rule of absolute confidentiality have been carved out by
the Legislature which legislation have been sustained, albeit subjected to
heightened scrutiny by the courts; and
d. One such legislated exception is Section 11 of the AMLA.
Taken into account Section 11 of the AMLA, the Court found nothing arbitrary in the
allowance and authorization to AMLC to undertake an inquiry into certain bank accounts
or deposits. Instead, the Court found that it provides safeguards before a bank inquiry order
is issued, ensuring adherence to the general state policy of preserving the absolutely
confidential nature of Philippine bank accounts:
Bound by these requirements for issuance of a bank inquiry order under Section 11 of the
AMLA, the Court are hard pressed to declare that it violates SPCMB's right to privacy.
2. Nonetheless, although the bank inquiry order ex-parte passes constitutional muster,
there is nothing in Section 11 nor the implementing rules and regulations of the AMLA
which prohibits the owner of the bank account, as in this instance SPCMB, to ascertain
from the CA, post issuance of the bank inquiry order ex-parte, if his account is indeed
the subject of an examination. Considering the safeguards under Section 11 preceding
the issuance of such an order, the Court find that there is nothing therein which
precludes the owner of the account from challenging the basis for the issuance thereof.
this allowance to the owner of the bank account to question the bank inquiry order is
granted only after issuance of the freeze order physically seizing the subject bank account.
It cannot be undertaken prior to the issuance of the freeze order.
All told, the Court affirm the constitutionality of Section 11 of the AMLA allowing the ex-
parte application by the AMLC for authority to inquire into, and examine, certain bank
deposits and investments.
The ex-parte inquiry shall be upon probable cause that the deposits or investments are
related to an unlawful activity as defined in Section 3(i) of the law or a money laundering
offense under Section 4 of the same law. To effect the limit on the ex-parte inquiry, the
petition under oath for authority to inquire, must, akin to the requirement of a petition for
freeze order enumerated in Title VIII of A.M. No. 05-11-,04-SC, contain the name and
address of the respondent; the grounds relied upon for the issuance of the order of inquiry;
and the supporting evidence that the subject bank deposit are in any way related to or
involved in an unlawful activity.
If the CA finds no substantial merit in the petition, it shall dismiss the petition outright
stating the specific reasons for such denial. If found meritorious and there is a subsequent
petition for freeze order, the proceedings shall be governed by the existing Rules on
Petitions for Freeze Order in the CA. From the issuance of a freeze order, the party
aggrieved by the ruling of the court may appeal to the Supreme Court by petition for review
on certiorari under Rule 45 of the Rules of Court raising all pertinent questions of law and
issues, including the propriety of the issuance of a bank inquiry order. The appeal shall not
stay the enforcement of the subject decision or final order unless the Supreme Court directs
1. Requisites of Negotiability
HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which
are managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or “Society for
Worldwide Interbank Financial Telecommunication.” In purchasing shares of stock and
other investment in securities, the investor-clients would send electronic messages from
abroad instructing HSBC to debit their local or foreign currency accounts and to pay the
purchase price therefor upon receipt of the securities.
These electronic messages are not bills of exchange as such instructions are “parallel to an
automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank.” They cannot be considered negotiable instruments
as they lack the feature of negotiability, which, is the ability to be transferred” and that the
said electronic messages are “mere memoranda” of the transaction consisting of the “actual
debiting of the [investor-client-]payor’s local or foreign currency account in the
Philippines” and “entered as such in the books of account of the local bank,” HSBC.
More fundamentally, the instructions do not comply with the requisites of negotiability
under Section 1 of the Negotiable Instruments Law.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill
of exchange; they do not contain an unconditional order to pay a sum certain in money as
the payment is supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically designated third party.
(The Hongkong and Shanghai Banking Corporation Limited-Philippine Branches
Vs. Commissioner of Internal Revenue; G.R. Nos. 166018 & 167728, 04 June 2014)
Under the Negotiable Instruments Law, a check made payable to cash is payable to the
bearer and could be negotiated by mere delivery without the need of an indorsement.
(People of the Philippines Vs. Gilbert Reyes Wagas; G.R. No. 157943, September 4,
2013)
A check payable to the order of an actual and living person may be considered a bearer
instrument as long the drawer did not intend him to be the actual recipient of the proceeds
of the instrument. Being a bearer instrument, it can be negotiated by mere delivery.
However, the fictitious payee rule is subject to the commercial bad faith exception. If there
is a showing of commercial bad faith on the part of the drawee bank, or any transferee of
the check for that matter will work to strip it of this defense. Such instrument shall then
be considered an order instrument which can not be negotiated without endorsement and
delivery of the payee. (PNB vs Spouses Rodriguez; GR No. 170325, September 26, 2008)
If the post-dated check was given to the payee in payment of an obligation, the purpose of
giving effect to the instrument is evident, thus title or ownership the check was transferred
to the payee. However, if the PDC was not given as payment, then there was no intent to
give effect to the instrument and ownership was not transferred. The evidence proves that
the check was accepted, not as payment, but in accordance with the policy of the payee to
cover the transaction (purchase of beer products) and in the meantime the drawer was to
pay for the transaction by some other means other than the check. This being so, title to
the check did not transfer to the payee; it remained with the drawer. The second element
of the felony of theft was therefore not established. Hence, there is no probable cause for
theft. (San Miguel Corporation vs. Puzon, Jr.; G.R. No. 167567, 22 September 2010)
The fact that a person, other than the named payee of the crossed check, was presenting it
for deposit should have put the bank on guard. It should have verified if the payee
authorized the holder to present the same in its behalf or indorsed it to him. The bank’s
reliance on the holder’s assurance that he had good title to the three checks constitutes
gross negligence even though the holder was related to the majority stockholder of the
payee. While the check was not delivered to the payee, the suit may still prosper because
the payee did not assert a right based on the undelivered check but on quasi-delict.
(Equitable Banking Corporation vs. Special Steel Products, June 13, 2012)
It was erroneous for the RTC to have concluded that there was no delivery and to dismiss
the complaint for lack of cause of action, just because the checks did not reach the payee,
considering presumption of valid and intentional delivery of a signed instrument under
Section 16 of the Negotiable Instruments. Hence, in order to resolve whether the Complaint
lacked a cause of action, the payee must present evidence to dispute the presumption that
the signatories validly and intentionally delivered the instrument. (Asia Brewery, Inc. and
Charlie S. Go V. Equitable PCIBank (Now Banco De Oro – EPCI Inc.); G. R. No. 190432
Dated April 25, 2017)
If the maker or drawer delivers a pre-signed blank paper to another person for the purpose
of converting it into a negotiable instrument, that person is deemed to have prima
facie authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact
that the instrument is wanting in a material particular, the law presumes agency to fill up
the blanks.
In order however that one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist: (1) that the
blank must be filled strictly in accordance with the authority given; and (2) it must be filled
up within a reasonable time. If it was proven that the instrument had not been filled up
strictly in accordance with the authority given and within a reasonable time, the maker can
set this up as a personal defense and avoid liability. However, if the holder is a holder in
due course, there is a conclusive presumption that authority to fill it up had been given and
that the same was not in excess of authority.
In the present case, the petitioner contends that there is no legal basis to hold him liable
both under the contract and loan and under the check because: first, the subject check was
not completely filled out strictly under the authority he has given and second, Marasigan
was not a holder in due course. Marasigan’s knowledge that the petitioner is not a party or
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is
already totally barred from recovery. The NIL does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument. The only disadvantage
of a holder who is not in due course is that the negotiable instrument is subject to defenses
as if it were non-negotiable. Among such defenses is the filling up blank not within the
authority. (Alvin Patrimonio Vs. Napoleon Gutierrez And Octavio Marasigan III;
G.R. No. 187769, 04 June 2014)
FORGERY
As between a bank and its depositor, where the bank’s negligence is the proximate cause
of the loss and the depositor is guilty of contributory negligence, the greater proportion of
the loss shall be borne by the bank. The bank was negligent because it did not properly
verify the genuineness of the signatures in the applications for manager’s checks while the
depositor was negligent because it clothed its accountant/bookkeeper with apparent
authority to transact business with the Bank and it did not examine its monthly statement
of account and report the discrepancy to the Bank. the court allocated the damages
between the bank and the depositor on a 60-40 ratio. (Philippine National Bank vs. FF
Cruz and Company; G.R. No. 173259, July 25, 2011)
While its manager forged the signature of the authorized signatories of clients in the
application for manager’s checks and forged the signatures of the payees thereof, the
drawee bank also failed to exercise the highest degree of diligence required of banks in the
case at bar. It allowed its manager to encash the Manager’s checks that were plainly crossed
checks. A crossed check is one where two parallel lines are drawn across its face or across
its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the check may be negotiated
only once — to the one who has an account with the bank; and (c) the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose
and he must inquire if he received the check pursuant to this purpose; otherwise, he is not
a holder in due course. In other words, the crossing of a check is a warning that the check
should be deposited only in the account of the payee. When a check is crossed, it is the
duty of the collecting bank to ascertain that the check is only deposited to the payee’s
account. (Philippine Commercial International Bank vs. Balmaceda, G.R. No. 158143,
2011)
Accommodation Party
The weight of authority sustains the view that a payee may be a holder in due course.
Hence, the presumption that he is a prima facie holder in due course applies in his favor.
However, said presumption may be rebutted and vital to the resolution of this issue is the
concurrence of all the requisites provided for in Section 52 of the Negotiable Instruments
Law. (Cely Yang vs. Hon. Court of Appeals, Philippine Commercial International
Bank, Far East Bank & Trust Co., Equitable Banking Corporation, Prem
Chandiramani and Fernando David; G.R. No. 138074, August 15, 2003)
As a general rule, the drawee bank is not liable until it accepts. Accordingly, acceptance is
the act which triggers the operation of the liabilities of the drawee (acceptor) under Section
62 of the Negotiable Instruments Law. However, as can be gleaned in a long line of cases
decided by this Court, a manager's check is accepted by the bank upon its issuance.
Notably, the mere issuance of a manager's check creates a privity of contract between the
holder and the drawee bank, the latter primarily binding itself to pay according to the tenor
of its acceptance. The drawee bank, as a result, has the unconditional obligation to pay a
manager's check to a holder in due course irrespective of any available personal defenses.
However, while this Court has consistently held that a manager's check is automatically
accepted, a holder other than a holder in due course is still subject to personal defenses. In
this case, the since the payee of the manager’s check delivered a defective car to the
purchaser of the manager’s check, which defect was made known to the bank and the payee
of the instrument before it could be encashed, the bank may countermand payment given
the defect in the title of the payee to the instrument (Rcbc Savings Bank, - Versus - Noel
M. Odrada; G.R. No. 219037, October 19, 2016,)
D. Liabilities of Parties
Section 119 of the NIL states that a negotiable instrument, like a check, may be discharged
by any other act which will discharge a simple contract for the payment of money.
If the check is undated, however, the cause of action is reckoned from the date of
the issuance of the check. This is pursuant to Section 17 of the NIL which provides
that an undated check is presumed dated as of the time of its issuance. The Court
also stressed that although the date on a check may be filled, this must be done strictly in
accordance with the authority given and within a reasonable time.
Art. 1249 of the Civil Code and Sec. 186 of the NIL require the presentment of checks
within a reasonable time after their issuance. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is
received sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given. It has, likewise, been held that
if no presentment is made at all, the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This is in harmony with Article 1249 of
the Civil Code under which payment by way of check or other negotiable instrument is Field Code Changed
conditioned on its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this provision
and if its no-payment is caused by his negligence, payment will be deemed effected and
the obligation for which the check was given as conditional payment will be discharged.
In the present case, Respondent’s subsequent failure to encash the checks within a period
of 10 years or more, not only resulted in the checks becoming stale but also had the effect
of payment. Petitioner is considered discharged from his obligation to pay and can no
longer be pronounced civilly liable for the amounts indicated thereon. (Benjamin
Evangelista V. Screenex, Inc., Represented By Alexander G, Yu; G.R. No. 211564,
November 20, 2017)
Yes. In cases of unauthorized payment of checks to a person other than the payee named
therein, the drawee bank may be held liable to the drawer. The drawee in turn may seek
reimbursement from the collecting bank.
A drawee bank is under strict liability to pay the check only to the payee or to the payee’s
order. When the drawee bank pays a person other than the payee named in the check, its
does not comply with the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items.
On the other hand, the liability of the collecting bank is anchored on its guarantees as the
last endorser of the check. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants “that the instrument is genuine and in all respects what it purports to
be; that he has good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and subsisting.”
The collecting bank generally suffer the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements.
Although the rule on the sequence of recovery of a forged or lacking endorsement check
has been deeply engrained in jurisprudence, exceptional circumstances would justify it
simplification. In this case, Engr. Lao was allowed to collect directly from Union Bank even
if there was no privity of contract between them (instead of from BDO Unibank with whom
it has a contractual relationship) since BDO Unibank was not made a party to the appeal.
(BDOUnibank, Inc. Vs. Engr. Selwyn Lao Doing Business under the Name and Style
“Selwyn F. Lao Construction”); G.R. No. 227005, June 19, 2017)
NB. Even if the drawee is impleaded in the case, payee may still sue directly the collecting
bank despite lack of privity of contract, as held in other cases. This is because the possession
a check based on a forged or unauthorized endorsement is wrongful and that the collecting
bank holds the proceeds in trust for the rightful claimant, not to mention, its negligence in
not ascertaining the forgery of the endorsement.
E. Checks
While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared,
clearing should not be confused with acceptance. Manager’s and cashier’s checks are still
the subject of clearing to ensure that the same have not been materially altered or otherwise
completely counterfeited. However, manager’s and cashier’s checks are pre-accepted by the
mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while
manager’s and cashier’s checks are still subject to clearing, they cannot be countermanded
for being drawn against a closed account, for being drawn against insufficient funds, or for
similar reasons such as a condition not appearing on the face of the check. Long standing
and accepted banking practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its
obligations towards the purchaser. On the contrary, the accepted banking practice is that
such checks are as good as cash. (Metropolitan Bank and Trust Company Vs. Wilfred
N. Chiok; G.R. No. 172652, November 26, 2014)