BANKING LAWS

Paulino Gullas vs. Philippine National Bank

G.R. No. L-43191 13 November 1935

Malcolm, J.:

FACTS: The United States Veterans Bureau issued a warrant payable to the order of Francico
Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of the aforementioned
check. Thereupon, it was cashed by the Philippine National Bank. Subsequently, the treasury
warrant was dishonored. The bank sent notices by mail to Mr. Gullas which could not be
delivered to him at that time because he was in Manila. The bank then proceeded to apply the
outstanding balances of Mr. Gullas account with the part payment of the subject check.
ISSUE: Whether or not PNB properly set off the account of Gullas with the payment of the
indorsed check.
HELD: No. Although PNB had with respect to the deposit of Gullas a right of set off, its remedy
was not enforced properly.
Notice of dishonor is necessary in order to charge an indorser and that the right of action
against him does not accrue until the notice is given. Prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of the money standing in his
account to make good for the treasury warrant. The action of the bank was prejudicial to Gullas.
As such,Gullas should be awarded nominal damages because of the premature action of the
bank.

Teofisto Guingona vs. The City Fiscal of Manila

G.R. No. L-60033 4 April 1984

Makasiar, Actg. C.J,

FACTS: From March 1979 to March 1981, Clement David made several investments with the
National Savings and Loan Association. On March 21, 1981, the bank was placed under
receivership by the Bangko Sentral. Upon David’s request, petitioners Guingona and Martin
issued a joint promissory note, absorbing the obligations of the bank. On July 17, 1981, they
divided the indebtedness. David filed a complaint for estafa and violation of Central Bank Circular
No. 364 and related regulations regarding foreign exchange transactions before the Office of the
City Fiscal of Manila. Petitioners filed the herein petition for prohibition and injunction with a
prayer for immediate issuance of restraining order and/or writ of preliminary injunction to enjoin
the public respondents to proceed with the preliminary investigation on the ground that the
petitioners’ obligation is civil in nature.
ISSUES:
(1) Whether the contract between NSLA and David is a contract of depositor a contract of loan,
which answer determines whether the City Fiscal has the jurisdiction to file a case for estafa
(2) Whether there was a violation of Central Bank Circular No. 364
HELD:
(1) When private respondent David invested his money on nine. and savings deposits with the
aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and
not a contract of deposit. Hence, the relationship between the private respondent and the
Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership
of the amount deposited was transmitted to the Bank upon the perfection of the contract and it
can make use of the amount deposited for its banking operations, such as to pay interests on
deposits and to pay withdrawals. While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same money that was
deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa
through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but
it will only give rise to civil liability over which the public respondents have no jurisdiction.
But even granting that the failure of the bank to pay the time and savings deposits of private
respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised
Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the
aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and
Martin assumed the obligation of the bank to private respondent David, thereby resulting in the
novation of the original contractual obligation arising from deposit into a contract of loan and
converting the original trust relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of
private respondent would not constitute a breach of trust but would merely be a failure to pay
the obligation as a debtor. Moreover, while it is true that novation does not extinguish criminal
liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing
of the criminal information in court. In the case at bar, there is no dispute that petitioners
Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation of
the bank to private respondent David; while the criminal complaint for estafa was filed on
December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred
long before the filing of the criminal complaint with the Office of the City Fiscal. Consequently, as
aforestated, any incipient criminal liability would be avoided but there will still be a civil liability
on the part of petitioners Guingona and Martin to pay the assumed obligation.
(2) Petitioner Guingona merely accommodated the request of the Nation Savings and loan
Association in order to clear the bank draft through his dollar account because the bank did not
have a dollar account. Immediately after the bank draft was cleared, petitioner Guingona
authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by
the bank for its operations. It is safe to assume that the U.S. dollars were converted first into
Philippine pesos before they were accepted and deposited in Nation Savings and Loan
Association, because the bank is presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that the transaction was regular and
fair, in the absence of a clear and convincing evidence to the contrary.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that
there is no clear showing that they engaged in foreign exchange transactions, We hold that the
public respondents acted without jurisdiction when they investigated the charges against the
petitioners. Consequently, public respondents should be restrained from further proceeding
with the criminal case for to allow the case to continue, even if the petitioners could have
appealed to the Ministry of Justice, would work great injustice to petitioners and would render
meaningless the proper administration of justice.
CA-Agro Industrial Devt Corp vs CA 219 SCRA 426
Facts:
On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses
Ramon and Paula Pugao entered into an agreement whereby the former purchase two
parcel of lands from the latter. It was paid of downpayment while the balance was
covered by there postdated checks. Among the terms and conditions embodied in the
agreement were the titles shall be transferred to the petitioner upon full payment of
the price and the owner's copies of the certificate of titles shall be deposited in a
safety deposit box of any bank. Petitioner and the Pugaos then rented Safety Deposit
box of private respondent Security Bank and Trust Company.

Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos
demand the execution of a deed of sale which necessarily entailed the production of
the certificate of titles. In view thereof, Aguirre, accompanied by the Pugaos, then
proceed to the respondent Bank to open the safety deposit box and get the certificate
of titles. However, when opened in the presence of the Bank's representative, the box
yielded no such certificate. Because of the delay in the reconstitution of the title, Mrs
Ramos withdrew her earlier offer to purchase.

Hence this petition.

Issue:
Whether or not the contract of rent between a commercial bank and another party
for the use of safety deposit box can be considered alike to a lessor-lessee
relationship.
Ruling:
The petitioner is correct in making the contention that the contract for the rent of
the deposit box is not a ordinary contract of lease as defined in Article 1643 of the
Civil Code. However, the Court do not really subscribe to its view that the same is a
contract of deposit that is to be strictly governed by the provisions in Civil Code on
Deposit; the contract in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was not given to the joint
renters- the petitioner and the Pugaos. The guard key of the box remained with the
respondent bank; without this key, neither of the renters could open the box. On the
other hand, the respondent bank could not likewise open the box without the renter's
key. The Court further assailed that the petitioner is correct in applying American
Jurisprudence. Herein, the prevailing view is that the relation between the a bank
renting out safe deposits boxes and its customer with respect to the contents of the
box is that of a bail or/ and bailee, the bailment being for hire and mutual benefits.
That prevailing rule has been adopted in Section 72 of the General Banking Act.

Section 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other that building and loan associations may perform the
following services:
(a) Receive in custody funds, document and valuable objects and rents safety deposits
taxes for the safeguard of such effects.
xxx xxx xxx
The bank shall perform the services permitted under subsections (a) (b) and (c) of this
section as depositories or as agents.
Bank deposits are funds obtained by a bank from the public which are relent by such bank to its own
borrowers. Deposit substitutes are alternative forms of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the own account
of the borrower, for the purpose of relending or purchasing of receivables and other obligations.
These instruments may include, but need not be limited to, bankers acceptances, promissory notes,
participations, certificates of assignment and similar instruments with recourse, and repurchase
agreements (Section 95, Rep. Act No. 7653, “The New Central Bank Act”).

1. bank definition
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of
deposits. (2a)
2. bank deposit vs contract of deposit
Article 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there is no deposit but some other
contract. (1758a)
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. (n)
Bank deposits are in the nature of irregular deposits; they are really loans because they earn
interest. The relationship then between a depositor and a bank is one of creditor and debtor.

The general rule is that a bank can compensate or set off the deposit in its hands for the payment of
the indebtedness to in on the part of the depositor. (Gullas vs PNB)
Article 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
(1753a)

Sec 4 GBL: "quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95
of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of relending or purchasing
of receivables and other obligations. (2-Da)

Section 95. Definition of Deposit Substitutes. — The term "deposit substitutes"

is defined as an alternative form of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or acceptance of debt instruments
for the borrower's own account, for the purpose of relending or purchasing of
receivables and other obligations. These instruments may include, but need not
be limited to, bankers acceptances, promissory notes, participations, certificates
of assignment and similar instruments with recourse, and repurchase
agreements. The Monetary Board shall determine what specific instruments shall
be considered as deposit substitutes for the purposes of Section 94 of this
Act: Provided, however, That deposit substitutes of commercial, industrial and
other non-financial companies for the limited purpose of financing their own
needs or the needs of their agents or dealers shall not be covered by the
provisions of Section 94 of

Secs. 3-22, 53.5, General Banking Law of 2000,

Sec. 95 New Central Bank Act
Art. 1980, 1962, 1953, Civil Code of the Phils.
Sec. 6, 28, 96 Corporation Code of the Phils., concept of authorized capital stock cf
outstanding capital stock
Sec. 263 (g), Labor Code of the Phils.
plus the ff cases:
1. Gullas v. PNB, 62 Phil 519
2. Guingona v. City Fiscal of Manila, 128 SCRA 577
3. CA Agro Industrial Corp v. CA, 219 SCRA 426
HINT: Memorize definition of bank, deposit, public, fit and proper rule, industry
indispensable to national interest.
Nature of a bank deposit
All kinds of bank deposits are loan. The bank can make use as its own the money deposited.
Said amount is not being held in trust for the depositor nor is it being kept for safekeeping
(Tang Tiong Tick v. American Apothecaries, G.R. No. 43682, March 31, 1938).
Contract between banks and depositors is not a trust agreement
The fiduciary nature of the bank-depositor relationship does not convert the contract between
banks and depositors to a trust agreement. Thus, failure by the bank to pay the depositor is
failure to pay simple loan, and not a breach of trust (Consolidated Bank and Trust Corp. v. CA,
G.R. No. 138569, September 11, 2003).
Nature of safety deposit box
The contract for the use of a safety deposit box should be governed by the law on lease.
In the case of Sia v. CA and Security Bank and Trust Company and under the old banking law, a
safety deposit box is a special deposit. However, the new General Banking Law, while retaining
the renting of safe deposit box as one of the services that the bank may render, deleted
reference to depository function (Divina, Handbook on Philippine Commercial Law).
Classifications of banks (2002, 2010 Bar)
1. Universal banks- Primarily governed by the GBL. They can exercise the powers of an
investment house and invest in non-allied enterprises and have the highest capitalization.
2. Commercial banks- Ordinary banks governed by the GBL which have a lower capitalization
requirement than universal banks and can neither exercise the powers of an investment house
nor invest in non-allied enterprises.
3. Thrift banks – These are a) Savings and mortgage banks; b) Stock savings and loan
associations; and c) Private development banks, which are primarily governed by the Thrift
Banks Act (RA 7906).
4. Rural banks – These are mandated to make needed credit available and readily accessible in
the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of
1992 (RA 7353).
5. Cooperative banks – Banks whose majority shares are owned and controlled by cooperatives
primarily to provide financial and credit services to cooperatives. It shall include cooperative
rural banks. They are governed primarily by the Cooperative Code (RA 6938).
6. Islamic banks – Banks whose business dealings and activities are subject to the basic
principles and rulings of Islamic Shari’ a, such as the Al Amanah Islamic Investment Bank of the
Philippines which was created by RA 6848.
7. Other classification of banks as determined by the Monetary Board of the BSP
GBL
SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions: 8.1. That the entity is a stock corporation (7); 8.2. That its funds
are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and 8.3. That the
minimum capital requirements prescribed by the Monetary Board for each category of banks are
satisfied. (n) No new commercial bank shall be established within three (3) years from the effectivity of
this Act. In the exercise of the authority granted herein, the Monetary Board shall take into
consideration their capability in terms of their financial resources and technical expertise and integrity.
The bank licensing process shall incorporate an assessment of the bank's ownership structure, directors
and senior management, its operating plan and internal controls as well as its projected financial
condition and capital base.

SECTION 9. Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the types
of stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure of banks: Provided, That
banks shall issue par value stocks only

SEC. 96. Articles of Incorporation. – The articles of incorporation of a close corporation may provide for:
(a) A classification of shares or rights, the qualifications for owning or holding the same, and restrictions
on their transfers, subject to the provisions of the following section;

(b) A classification of directors into one (1) or more classes, each of whom may be voted for and elected
solely by a particular class of stock; and

(c) Greater quorum or voting requirements in meetings of stockholders or directors than those provided
in this Code.

The articles of incorporation of a close corporation may provide that the business of the corporation
shall be managed by the stockholders of the corporation rather than by a board of directors. So long as
this provision continues in effect, no meeting of stockholders need be called to elect directors: Provided,
That the stockholders of the corporation shall be deemed to be directors for the purpose of applying the
provisions of this Code, unless the context clearly requires otherwise: Provided, further, That the
stockholders of the corporation shall be subject to all liabilities of directors.

The articles of incorporation may likewise provide that all officers or employees or that specified officers
or employees shall be elected or appointed by the stockholders, instead of by the board of directors.

FIT AND PROPER RULE

SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford better
protection to depositors and the public in general, the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit.

After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or
remove any bank director or officer who commits or omits an act which render him unfit for the
position.

In determining whether an individual is fit and proper to hold the position of a director or officer of a
bank, regard shall be given to his integrity, experience, education, training, and competence. (9-Aa)

SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any vacancy occurring in the
board of directors or trustees other than by removal or by expiration of term may be filled by the vote of
at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders or members in a regular or special meeting called for that
purpose.

When the vacancy is due to term expiration, the election shall be held no later than the day of such
expiration at a meeting called for that purpose. When the vacancy arises as a result of removal by the
stockholders or members, the election may be held on the same day of the meeting authorizing the
removal and this fact must be so stated in the agenda and notice of said meeting. In all other cases, the
election must be held no later than forty-five (45) days from the time the vacancy arose. A director or
trustee elected to fill a vacancy shall be referred to as replacement director or trustee and shall serve
only for the unexpired term of the predecessor in office.

However, when the vacancy prevents the remaining directors from constituting a quorum and
emergency action is required to prevent grave, substantial, and irreparable loss or damage to the
corporation, the vacancy may be temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees. The action by the designated director or trustee
shall be limited to the emergency action necessary, and the term shall cease within a reasonable time
from the termination of the emergency or upon election of the replacement director or trustee,
whichever comes earlier. The corporation must notify the Commission within three (3) days from the
creation of the emergency board, stating therein the reason for its creation.

Any directorship or trusteeship to be filled by reason of an increase in the number of directors or

trustees shall be filled only by an election at a regular or at a special meeting of stockholders or
members duly called for the purpose, or in the same meeting authorizing the increase of directors or
trustees if so stated in the notice of the meeting.

In all elections to fill vacancies under this section, the procedure set forth in Sections 23 and 25 of this
Code shall apply.