BP 22 is in the nature of a continuing crime. The gravamen is the actual issuing of the check; it doesn't matter whether or not the intent of the perpetrator was fraudulent. The indeterminate sentence law can also apply to BP 22. Those who question the constitutionality of BP 22 on the ground that no person shall be imprisoned for failure to pay his debts have  to remember that a violation of BP 22 is not a crime against property but against public interest since checks, as a medium of commerce, are vital to the banking  industry.

Another thing to consider is Administrative Circular 13-2001. This circular clarifies the penalty to be imposed in BP 22 cases. In case a BP 22 case is proven in court, the court must not impose imprisonment first. The court is to consider the least severe penalty; the purpose is to redeem the issuer's economic value (read: to protect honest issuers who weren't able to make good on their checks.)

With regard to the circular, therefore, there are 3 penalties to consider:

1.) The prison term in BP 22

2.) Fine

3.) Subsidiary imprisonment in case of inability to pay the fine


An order to stop payment for insufficiency of funds is not a defense, but lack of knowledge  of the transaction and issuance can be (if there is a lack of delivery.)


A notice of dishonor must be written and personally served to the issuer or it won't be effective. Also, if a check bounces only the issuer is liable and not other indorsers.


The prescriptive period of BP 22 is 4 years from the date of receipt of the notice of dishonor.

RA 6426: Foreign Currency Deposit Act

Here's the piece of legislation that's been one of the significant issues of the Corona impeachment case: RA 6426, the Foreign Currency Deposit Act. The purpose of this law, when it was enacted, was to protect foreign currency deposits in order to encourage an inflow of foreign capital necessary for our country's industries. The law allows foreign currencies to be incorporated into the national reserve.

Any person, natural or juridical is allowed to maintain foreign currency accounts (not just dollars) in banks with good standing in the Philippines. These banks will be designated by the Central Bank. The authority granted to these banks are as follows:

1.) Accept deposits and foreign currencies in trust (numbered accounts fore servicing and recording of these deposits is allowed)

2.) Issue certificates as evidence of these deposits

3.) To discount these certificates

4.) Accept the deposits in question as collateral for loans under the rules and regulations promulgated from time to time by the Central Bank

5.) Pay interest in foreign currency on these deposits

The banks in question are required to maintain a 100% cover for their deposit liabilities.

Foreign currency deposits are also exempt from attachment and garnishment. The law covers the following:

1.) Examination and inquiry into all deposits of whatever nature

2.) Disclosure by any official or employee of any banking institution to any unauthorized person of any information concerning the deposit in question

The exceptions are the following:

1.) Under written permission of the depositor

2.) Cases under the Anti-Money Laundering Act

3.) If the money was unlawfully taken and deposited in a bank, the rightful owner can inquire into the deposit in question (GSIS vs. CA, GR 189206, June 8, 2011 and China Bank vs. CA, GR 140687, December 18, 2006 -pro hac vice ruling)

4.) Under PD 1035, which created the Foreign Currency Deposit System and PD 1246, both of which amended RA 6426, the protection of RA 6426 is intended to cover foreign lenders and investors, not tourists (Salvacion vs. Central Bank, GR 94723, August 21, 1997)

The recent case of PSBank vs. Senate Impeachment Court, GR 200238, February 9, 2012, where PSBank requested a TRO with regard to Chief Justice Corona's bank account highlights a need to further improve this law.

Violations of this law are penalized 1 to 5 years' imprisonment and/or a fine of Php5,000 to 25,000.

Other Unique Defenses

Here's another set of unique defenses in negotiable instruments.

1.) Incomplete, but delivered, instrument

The holder has the prima facie authority to fill up the instrument. This must be done strictly within the authority given and within reasonable time. A holder in due course can enforce the instrument as if it was filled up within the given authority and in reasonable time.

2.) Incomplete and undelivered instrument

This is a real defense. If completed and negotiated without authority, it's not a valid contract against a person who signed  before delivery of the contract even in the hands of a holder in due course. Subsequent indorsers, however, are liable.

3.) Complete, but undelivered instrument

This is another real defense. Between the immediate parties and those similarly situated, delivery must go together with the intention to transfer the title of the instrument. Regarding a holder in due course, however, there is a conclusive presumption of a valid delivery. As against an immediate party and a remote party, valid and intentional delivery is a rebuttable presumption.

4.) Undated instrument

Filling up of the date won't make the instrument void. For a holder in due course who received the instrument after the date was filled up, the date will be considered as the true date. Incomplete instruments negotiated to a holder in due course is valid for all intents and purposes (see 1.)

5.) Absence/Failure of consideration or illegal consideration

These are personal defenses to the prejudiced party and available against a person who isn't a holder in due course. If the consideration is an illegal one, it is a real defense if the law declares the instrument void for any purpose.

6.) Minority, incapacity or lack/want of authority

A minor or incapacitated person can invoke minority or incapacity, as the case may be, as a real defense. It's personal only to the minor/incapacitate. Others can't invoke it. Transfer, however, by the minor constitutes effective negotiation. 

If the issuance of the instrument constitutes an ultra vires act of a corporation, it is a real defense.

7.) Prescription

Real defense against a holder in due course. The prescriptive period is 10 years from the date the cause of action accrued. For checks, the action of the depositor against the drawee bank starts to run when he receives the notice of payment.

8.) Fraud

There are 2 kinds: fraud in inducement and fraud in execution. Fraud in inducement is a personal defense. It takes place when the maker of the instrument was induced to make the instrument and his consent to issue the instrument was vitiated by fraud. Fraud in execution, also known as fraud in factum or esse contractus, takes place when the person who signs the isntrument doesn't know that it's a negotiable instrument (ex. a blind person being asked to sign a letter he dictated, not knowing that a check was placed under his pen.

Forgery in Negotiable Instruments

So now that you've read the list of defenses for a negotiable instrument, here is one of several defenses that have special treatment.

Forgery

Takes place when the signature in the negotiable instrument is either forged or made without the authority of the person the signature purports to be. It is wholly inoperative and no right to retain it, discharge it or enforce its payment against any party to the instrument can be acquired unless the party against whom it's enforced is prohibited from raising forgery or lack of authority as a defense. It's done in any of the following ways:

1.) Signing in another's name with intent to defraud
2.) Altering the name, amount, payee's name, etc. with intent to defraud

Take Note:

1.) Only the forged signature is invalid. The instrument itself and the genuine signatures are valid.

2.) Payment under a forged instrument isn't to the drawer's order. In case of a forged instrument or one that's payable to order, the person whose signature is forged isn't liable; the same is true for prior parties.

3.) Even if the signature is forged, there are parties who can't set up forgery or lack of authority as a defense. These are:

a.) Those who are negligent

b.) Those who expressly or impliedly ratified the forgery (done either by their acts or by silence)

c.) Those who warrant/admit the genuineness of the signature in question, such as indorsers, acceptors and persons negotiating by delivery

Be careful about where and/or with whom you leave your checkbook (Ilusorio vs. CA, GR 139130, November 27, 2002.) You could be held liable if your secretary forged your signature.

4.) In case of forgery of indorsement of the payee of the check the drawee bank can't debit the drawer's account and the loss shall be borne by the drawee bank. The depositary or collecting bank is liable to the drawee in case of a forged indorsement because it guarantees all previous indorsement. That's the general rule. It is subject to the qualification that the drawer wasn't negligent or guilty of such conduct as would estop him from asserting the forged character of the indorsement as against the drawer. Only the drawee may be held liable if it isn't established that the checks containing forged instruments passed through the alleged collecting bank (Traders Royal Bank vs. RPN, GR 138510, October 10, 2002.) In this case, the drawee encashed the checks (1 of them was crossed) presented by unknown persons although they were payable to the BIR (OMG!)

5.) If the drawer's signature is forged, the drawee can't charge the drawer's account and can't recover from the collecting bank.

Forged Promissory Note

A. Forged Indorsement

1.) If payable to order: the party whose indorsement is forged and parties prior to him, including the maker, aren't liable, even to a holder in due course. Forged instruments are inoperative and can't transfer rights or title over the instrument.
2.) If payable to bearer: the party whose indorsement is forged and all parties prior, including the maker, are liable to a holder in due course but not to a holder who isn't in due course (a holder for value.) The instrument can be negotiated by mere delivery (because it's payable to bearer) so indorsement isn't necessary to transfer title. The forgery can be discarded.

B. Forged Signature

The maker isn't liable to any holder; it won't matter if it's a holder in due course or not. The purported maker isn't a party to the instrument because his signature was forged (and isn't operative.)

Forged Bill of Exchange

A. Forged Indorsement

1.) If payable to order: the drawee can't charge the drawer's account, the drawer can't recover from the collecting bank (but the drawee can,) the payee can recover from the drawer or the recipient of payment (but not from the drawee) and the collecting bank bears the loss but can recover from the person to whom it paid the check.

2.) If payable to bearer: same as in promissory notes

B.) Forged Signature

1.) With drawee's acceptance: drawee bears the loss; he's bound by warranty. The drawer isn't liable; the signature isn't operative.

2.) Without drawee's acceptance, but paid, by drawee: drawee can't recover from the drawer or the recipient of payment; no warranty, however, he's constructively negligent.

The above rules on forged bill of exchange and promissory notes are subject to the rule precluding the defense of forgery by warranty, as in the case of parties negotiating an instrument subsequent to the forgery or estoppel, as in the case of negligence.

Negotiable Instrument Defenses

There are 2 kinds of defenses in negotiable instruments: personal and real

Real Defenses

1.) Minority

2.) Forgery

3.) Non-delivery of an incomplete instrument

4.) Material alteration

5.) Ultra vires act of the corporation

6.) Fraud in factum/esse contractus

7.) illegality (if declared void for any purpose)

8.) Force/violence

9.) Lack of authority

10.) Prescription

11.) Discharge in insolvency

Personal Defenses

1.) Failure/absence of consideration

2.) Illegal consideration

3.) Non-delivery of a complete instrument

4.) Conditional delivery of a complete instrument

5.) Fraud in inducement

6.) Filling up blank not within authority

7.) Duress/intimidation

8.) Filling up blank beyond reasonable time

9.) Transfer in breach of faith

10.) Mistake

11.) Insertion of wrong date

12.) Ante-dating or post-dating for illegal/fraudulent purposes

Real/absolute defenses attach to the instrument and are available against all holders, whether in due course or not, but only the entitled party/ies can raise them. Personal/equitable defenses are available only against the holder standing in privity with the party entitled to the defense or those who don't have the rights of a holder in due course.

Certified Checks and Assignment

If you've read The Check, that was an introduction to this article. 

Certified Checks

If a check is certified by the bank from which is is drawn, the certification is considered as an acceptance. Payment is therefor guaranteed if it is presented. These are its effects:

1.) Certification = Acceptance

2.) If procured by the holder, all persons secondarily liable are discharged from liability

3.) Operates as an assignment of the drawer's funds in the hands of the drawee bank

4.) The payee or holder becomes the depositor of the drawee bank for all intents and purposes and with the rights and duties of one so situated

5.) The drawer can't issue a stop payment order on a certified check

Certifying checks enables persons who aren't well-acquainted with each other to do business quickly since the holder of the check can make the drawee bank encash the check. It avoids the risks and delays of handling large amounts of money.

If the holder procures the check's certification, the owner and indorser are discharged of their liability because the amount of the drawer's credit deposit with the drawee equal to the amount in the check is taken from the drawee and used to pay for the check. If certification was procured by someone who isn't the holder, the secondary parties aren't discharged as when it is obtained by the drawer even at the payee's request or if the payee is also the drawer himself. In the Philippines, certification is made only on the drawer's request. Cashiers' and manager's checks have the same treatment as certified checks and most banks charge a fee for certification.

Assignment

A check doesn't operate as a transfer or funds until it is accepted or certified. On its own, it's just an order by the drawer to the drawee to pay the payee. When the assignment is finally made, whether by certification or acceptance, the cash is already considered transferred. It's no longer the drawer's money.

There are, however, instances when the bank can refuse payment of checks drawn against it:

1.) The bank is insolvent

2.) The drawer's account is either insufficient, closed, garnished or doesn't exist

3.) The drawer is insolvent and proper notice is given to the bank

4.) The drawer dies and proper notice is given to the bank

5.) The drawer has countermanded payment

6.) The holder refuses to identify himself

7.) There is reason to believe that the check is forged

8.) The check is stale or postdated (postdated checks are payable on or after the date indicated)

A contract of deposit (the opening of a bank account) between the bank and a depositor is a contract of loan. The depositor loans money to the bank and the bank is obliged to pay interest for its use. The bank is the debtor while the depositor is the creditor. If, however, checks are received by the bank for collection and deposit, the bank now becomes an agent of the depositor as far as the collection of money from the banks from which the checks in question were drawn.

The Check

This article is to be read in conjunction with this one, RA 9160 and BP 22.

A check is a bill of exchange drawn on a bank and payable on demand. This is because checks are ordinarily intended for immediate payment. After its issue, a check must be presented for payment within a reasonable period. Once accepted or certified, the drawer and indorsers of the check are released from liability.

Special Kinds of Checks

1.) Memorandum Check

Also called a "memo check." Looks like an ordinary check except that "memorandum," "mem" or "memo" is written on it. The drawer agrees to pay the bona fide holder of the check absolutely, not upon presentment at maturity and if due notice of the presentment and non-payment should be given. The drawer may therefore be sued like the maker of a promissory note.

2.) Cashier's Check

A check drawn by the cashier of the bank on the bank itself and considered accepted by its mere issuance. It is the bank's own check and can be treated as its promissory note. Operates as an assignment of funds represented by the check to the holder/payee's credit. If drawn by a bank on another bank, it's called a bank draft.

3.) Manager's Check

Similar to a cashier's check in use and effect but is drawn by the bank manager himself.

4.) Traveler's Check

A check intended to supply a traveler with funds without having to carry money along. The holder's signature must appear twice on the check: first at the time it is issued and second (counter-signature) in the payee's presence before it is paid. If not, it's incomplete. The bank or issuing company can refuse payment if there is no counter-signature or if the agreed counter-signature is not present.

5.) Certified Check

A check that bears an agreement to be paid upon presentation. Like a memorandum check, it looks like a regular check until "Certified" is stamped or written on its face. Its purpose is to enable the holder to use it for money.

6.) Crossed Check

Initially an ordinary check until 2 diagonal lines are drawn on it, usually on the upper left side. There are 2 kinds: crossed generally and crossed specially. Crossed specially checks have the name of a particular bank or company to be paid written between the diagonal lines; the drawee bank must pay when the bank/company named in the check presents it for payment. Generally crossed checks have "and Co." written between the lines and the drawee bank must pay through the intervention of another bank; this is the check that can't be encashed and must be deposited directly to the holder's account. A crossed check's purpose is to ensure that the payee gets paid, especially if sent through mail or through an agent. Crossing a check won't affect its negotiability.

Stale Check

If a check hasn't been presented for payment within a reasonable time since its issuance, it loses its value (goes stale.) Banking practice sets a maximum of 6 months from the date of issuance as a reasonable enough time to present the check for payment. The bank will not pay such a check without first consulting the drawer. The drawer isn't freed from liability by a mere delay in the presentation of the check if he won't suffer any loss from delay.

Discharge of Liability

The drawer of the check can be freed from his liability if the following requisites are present:

1.) The check isn't presented within a reasonable time after its issuance (6 month rule)

2.) The drawer suffers a loss

3.) The loss of the drawer is attributable to the delay in presentation

The liability of the drawer in case of delay is to the extent that he suffered the loss in question; the indorser on the other hand is discharged fully, regardless of loss or injury by delay in presentment unless presentment is excused/dispensed with. This difference is due to the indorser, by legal fiction, suffers prejudice while the drawer doesn't necessarily suffer prejudice. If, however, the check is presented within the time limit the drawer can still be freed from liability if he isn't given a notice of dishonor within the prescribed time.

RA 9160: Money Laundering

RA 9160, Also known as the Anti-Money Laundering Act, is a welcome -although late- addition to the Philippine justice system.

Offenses punishable under RA9160 are the following:

1.) The crime of money laundering itself

2.) Failure to keep records

3.) Failure to report covered transactions

4.) Malicious reporting

5.) Breach of confidentiality

Money Laundering

It is a crime where the proceeds of an illegal activity are transacted, consequently making them appear to have come from legitimate sources. It takes the form of the following:

1.) Any person who knows that any monetary instrument or property represents, involves or is related to the proceeds of any illegal activity but transact/tries to transact the instrument/property anyway

2.) A person who, knowing that any monetary instrument or property involves the proceeds from any illegal activity, performs or fails to perform an act a result of which he facilitates the offense of money laundering in the previous paragraph

3.) If a person knows that any monetary instrument or property that is required under the money laundering law (RA 9160, as amended by RA 9194) to be disclosed and filed with the Anti-Money Laundering Council and fails to do so

A person can be convicted of both the illegal activity and money laundering. Any case related to the illegal activity, however, is given precedence over the prosecution of any offense or violation of the money laundering law without prejudice to freezing and other remedies. 

The RTC has jurisdiction over money laundering cases except if the money laundering is committed by public officers or private persons conspiring with them. In this instance, the case will be tried by the Sandiganbayan.

Covered Institutions

These are the institutions covered under the money laundering law. They refer to:

1.) Banks, non-banks, quasi-banks, trust entities and all other institutions and their subsidiaries and affiliates under the regulation ans supervision of the Central Bank

2.) Insurance companies and all other institutions supervised and regulated by the Insurance Commissioner

3.) Securities, dealers, brokers, salesmen, investment houses an other similar entities managing securities or rendering services as investment agents, advisers, consultants; mutual funds, close-end investment companies  and other similar entities; forex corporations, money changers, money payment, remittance and transfer companies and other similar entities; and entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised by the SEC

Transactions Covered by RA 9160

These transactions are reported to the Anti-Money Laundering Council within 5 working days from their occurrence unless the supervising authority prescribes a longer period of up to 10 days. This is an exception to the Bank Secrecy Law, RA 6426, RA 8971 and other similar laws; provided the reporter doesn't communicate any information related to the report to any person.

1.) Covered Transaction

A transaction in cash or equivalent monetary instrument where the amount exceeds Php500,000.00 in a single banking day,

2.) Suspicious Transaction

A transaction with covered institutions, regardless of the amount involved, if any of the following circumstances are present:

a.) No underlying legal trade/obligation, purpose or economic justification

b.) Client isn't properly identified

c.) Amount involved isn't commensurate with the client's business or financial capacity

d.) Client's transaction is structured in order to avoid being subject to the reporting requirements of the money laundering act(!)

e.) Any circumstance related to the transaction is observed to deviate from the client's profits or his past transactions with the covered institution

f.) The transaction is related to any illegal activity or offense under the money laundering law and is about to be, is being or has been committed

g.) Any transaction similar or analogous to any of the above

Unlawful Activities Under RA 9160

1.) Kidnapping for ransom

2.) Drug trafficking

3.) Violations of the Anti-Graft and Corrupt Practices Act

4.) Plunder

5.) Robbery and extortion

6.) Jueteng and masiao

7.) Piracy on the high seas

8.) Qualified theft

9.) Swindling/estafa

10.) Violations of the E-Commerce Act

11.) Hijacking and other violations of RA 6235

12.) Destructive arson and murder, including those committed by terrorists against non-combatants and similar targets

13.) Fraudulent practices and other violations under the Securities Regulations Code

14.) Acts of terrorism

15.) Felonies/offenses of a similar nature punishable under the criminal laws of other countries

These crimes can be prosecuted together with the violation of RA 9160

Penalties

1.) Imprisonment from 7 to 14 years and a fine of at least Php3M, but not to exceed double the value of the monetary instrument or property involved in the offense for the first form of money laundering (see above.)

2.) Imprisonment from 4 to 7 years and a fine of between Php1.5M to Php3M for the second form of money laundering (same.)

3.) Imprisonment from 6 months to 4 years and/or a fine of Php100,000.00 to Php500,000.00 for the third form of money laundering (same.)

4.) Imprisonment of 6 months to 1 year and/or a fine of Php100,000.00 to Php500,000.00 for failure to keep records.

5.) Imprisonment of 6 months to 4 years and a fine of Php100,000.00 to Php500,000.00 for malicious reporting. Also, the offender can't avail of the Probation Law. If the offender is a corporation or any juridical person, the officers responsible will get this penalty and the juridical entity's license will be revoked. If the offender is an alien, he will be deported after serving sentence. If the offender is a public official or employee, perpetual or temporary absolute disqualification; he will also suffer the same if he refuses or purposely fails to testify.

6.) Imprisonment of 3 to 8 years and a fine of Php 500,000.00 to Php1M for breach of confidentiality. If committed by a media company, the reporter responsible, writer, editor-in-chief, president, publisher and manager will be held liable.

Letters of Credit

The Code of Commerce defines a letter of credit as a "letter issued by one merchant to another for the purpose of attending to a commercial transaction." For banking, when a person issues a letter of credit, a bank will request an advance of money to a third person based on the "letter and credit" of the person issuing the letter. This takes place in international transactions in view of unforeseen possibilities that could take place between the time the sale is made and the time the goods are delivered. Any of the parties could change their minds, causing trouble for the deal. The letter of credit's purpose is to make sure the transaction will push through and the seller will get paid when the necessary documents are presented.

A word of caution: the bank is responsible only for handling the documents, not the merchandise. If what was delivered to you isn't what you ordered, you have to go after the seller. Banks only deal with documents, not goods, and have no duty to verify what was indicated in the letter or credit, drafts, etc. with what was actually loaded on board for shipment. This is called the Independence Principle.

The exception to the Independence Principle is fraud or forgery in the underlying transaction or tender of documents.

A letter of credit must be issued to a definite person and not to order (meaning it can't be transferred by negotiation, such as in a negotiable instrument,) and the amounts must be specifically stated in the document. Trust receipts, documents of title and bills of lading also go along with the letter.

Kinds of Letters of Credit

1.) Confirmed letter of credit: the correspondent bank gives the seller the absolute assurance that it will pay the seller for the issuing bank (and becomes the paying bank.) 

2.) Irrevocable letter of credit: can't be revoked by the issuing bank unless the buyer and seller agree. It is a definite obligation for the issuing bank to pay when the papers are presented. An irrevocable letter of credit doesn't mean it's confirmed. The correspondent bank might not confirm it.

3.) Revolving letter or credit: provides for renewed credit  to become available as soon as the opening bank has advised the negotiating or paying bank that the drafts already drawn by the beneficiary were reimbursed to the opening bank by the buyer.

4.) Back-to-back letter of credit: credit with identical documentary requirements and covering the same merchandise as another letter of credit, except for a difference in the price of the merchandise (shown by the invoice and draft.) The second letter of credit can be negotiated only after the first one is negotiated.

5.) Standby letter of credit: security arrangement for the performance of certain obligations. Can be drawn against only if another business transaction isn't performed and may be issued in place of a performance bond. The beneficiary must prove that the obligor failed to perform the secured obligation, unlike an ordinary  letter of credit where the beneficiary can recover if he can show that he performed his obligation (delivered the purchased goods.)

There are three contracts involved in a letter of credit:

1.) The contract between the buyer and seller

2.) The contract between the buyer and the issuing bank

3.) The letter of credit proper where the bank pays the seller according to the stated terms and conditions

The parties to a letter of credit are:

1.) The buyer

2.) The seller -located abroad

3.) The issuing bank -the bank that pays the seller when the letter of credit is delivered. The document of title is issued in its name.

4.) The notifying bank -the bank that notifies the seller that the letter of credit was issued.

5.) The confirming bank -a large and well-known bank (usually) that guarantees the transaction by jointly cooperating with the opening bank under the letter of credit's terms ans conditions (and consequently lending its credibility to the transaction.)

6.) The paying bank -the issuing bank pays the seller through this bank, which is located in the seller's place (can be the notifying bank) or in another place (negotiating bank.) The negotiating bank pays by buying or discounting the draft.

So here's a scenario: a businessman in the Philippines wants to order a set of chemicals for his manufacturing plant. He informs the supplier in China, goes to the bank and applies for a letter of credit. The bank becomes the issuing bank. The issuing bank informs a bank in China which, in turn, informs the supplier. This second bank becomes the notifying bank. If it agrees to pay the supplier when the papers arrive, it becomes the paying bank as well. The issuing bank contacts a big, well-known bank (like HSBC for example) to guarantee the payment. The big bank becomes the confirming bank. When the supplier delivers the goods and gets the letter of credit, he brings the papers to the paying bank and gets paid. The issuing bank reimburses the paying bank and the businessman reimburses the issuing bank.

Another thing to remember: if the papers are fake, the buyer must still reimburse the bank if the seller was paid in good faith (meaning he didn't know the papers were fake) because the issuing bank is not responsible for the genuineness of the papers.

Bank Basics

The General Banking Law (RA 8791) defines a bank as an entity that lends money from deposits it obtains from the public. "Public" refers to twenty (20) ore more people.

A quasi-bank (also known as a finance corporation) borrows money from the public through deposit substitutes which it lends or uses to buy receivables or other obligations.

Banks and quasi-banks have the following requirements:

1.) They must be stock corporation. The must be of par value. Banks can't buy their own shares or accept them as security for a loan unless authorized by the Monetary Board of the Central Bank. If allowed, they must be sold or disposed of within six (6) months of purchase or acquisition.

2.) Its money must come from the public. Remember the definition of "Public."

3.) It must meet the minimum requirements prescribed by the Monetary Board for the category it belongs to (thrift, rural, commercial...)

4.) The Board of Directors should have a minimum of five (5) and a maximum of fifteen (15) members, two (2) of whom should be independent (meaning someone who isn't an officer of the bank, its subsidiaries, affiliates or related interests.

Banks cannot go into the insurance business. Hiring casual employees for positions involving deposits in also prohibited. Banks are also not subject to Central Bank Circular 416; other rules dictate their interest rates on loans.

The Central Bank 2: Your Money

-->

Your banknotes and coins are manufactured by the Central Bank. Here are things you should know about them. Some are trivial and nobody cares because they're not really that important. Some are serious and must not be ignored.

1.) Legal tender is the power to force a seller to accept the type of money offered to him when you buy his merchandise. It is not the money itself. The only money with legal tender in the Philippines is the Philippine Peso. All other kinds of money (dollars, pounds, euros, and so on...) are considered commodities that can be bought or sold (hence the term “Foreign Exchange.”)This may not apply in some other contracts since the Civil Code allows payment in other currencies under certain instances.

2.) Coins of 25-centavo value and below have legal tender only up to one hundred pesos (Php100.00) and coins valued at Php1 and above and upward have legal tender up to one thousand pesos (Php1,000.00.) In case of a mixture between both groups of coins, legal tender for both sets still applies (25-centavo coins and eblow aren't allowed to go above Php100 and Php1 coins and up can't go above Php1,000.) Seems kinda awkward but in practice, it doesn't make much sense and nobody cares (so why should you?)

3.) The Central Bank can have its bills and coins manufactured outside the country for convenience and to protect them from forgers.

4.) Central Bank Circular 416 limits interest rates on loans from non-banking entities to twelve percent (12%) per year only. So 5-6 is illegal. This interest rate also applies to court decisions and forbearance (not exercising your right to collect) of money, goods or credit. Loans with monthly interest rates from private persons are allowed 3% per month.

5.) The Monetary Board approves the designs for coins and bills.

6.) The Central Bank replaces old and damaged coins and bills with new ones on demand and free of charge. The minimum age for replacement is five (5) years for bills and ten (10) for coins. Notes and coins called in for replacement remain legal tender for one (1) year from date of call; after that year, they're no longer legal tender but can be exchanged for free and at par (and after this second year, those notes and coins not exchanged are already demonetized.) For damaged currencies, the Central Bank won't replace coins that cannot be identified or have signs that they were deliberately damaged and bills that are more than two-fifths (2/5) or forty percent (40%) damaged.

7.) Do not damage your coins! Do not vandalize your bills! They're crimes. You'll get prision correccional (6 months and 1 day to 6 years behind bars!) Even selling deliberately damaged coins will land you in jail.

8.) Counterfeiting coins, as well as their distribution, is punishable by prision mayor (6 years and 1 day to 12 years) and a P10,000 fine in case of 10c coins or higher and prision correccional and a P2,000 fine for coins lower than 10c. Prision correccional is also imposed on the counterfeiting of foreign coins, as well as a P1,000 fine. Forging bills carries with it reclusion temporal (12 years and 1 day to 20 years) and a fine of P10,000 for Philippine bills and prision mayor and a P5,000 fine for foreign bills.

9.) Art. 2. par. 2 of the Revised Penal Code says the government can prosecute, even outside the country, for forging and counterfeiting Philippine currency. This is usually done through the Philippines' embassies when they press charges against foreign counterfeiters in the countries where they live.

The Central Bank 1: Meet the Monetary Board

RA 7653 reorganized the Central Bank of the Philippines. The Central Bank is the supervisory and regulatory authority of all banks and financing institutions in the Philippines. It is responsible for the production and control of our currency and, as such, cannot be ignored by the country. It prevents the economy from becoming unstable. Even the most powerful government body, Congress (not the President; I'll tell you why in a later article) cannot encroach on it. All Congress is limited to is confirming appointments to the Monetary Board through the Commission on Appointments. In this light, this is one of the few times Congress can't play around. The Central Bank can't afford to be corrupt -and no one in his right mind will want to corrupt it. Consequently, it is only one of a few government bodies that I trust.

The Central Bank is headed by the Monetary Board, which has seven (7) members. Each member has a term of six (6) years. Appointments are made by the President and confirmed by Congress through the Commission on Appointments. This is one of they few times that people cannot fool around. Nobody wants everybody's assets tampered by amateurs. The Monetary Board consists of the Central Bank Governor, a member of the Cabinet and five (5) full-time members from the private sector. Sec. 8 provides that the minimum age is thirty-five (35) for members and forty (40) in case of the governor. Additionally, sec. 8 says all must be of good moral character, unquestionable integrity, known probity and patriotism and recognized competence in social and economic disciplines. All members may be reappointed only once. The governor also apponts three (3) deputy governors, who perform duties arrsigned to them by the governor and the board.

Sec. 9 gives us the disqualifications. Members must not be employees, brokers, agents, consultants, lawyers, officers, and even stockholders of any bank or financial institutions during their term of office. If they were such before being appointed, they must leave thes institutions and free themselves from all interests they have in them. They are also subject to the disqualifications in RA 6713. Members are removed if they lose sec. 8's qualifications, suffer from physical or mental incapability for more than six (6) months or commits frauds or illegal acts or does things that are in conflict with the Central Bank's aims and interests. People with personal interests in the Central Bank also cannot be members of the board. Members of the private sector also must have no other office in government. Removals are done by the president.

The members meet at least once a week. Meetings are called either by the governor or two (2) members. The governor plus three (3) other members present are sufficient to do business. The governor and cabinet member can appoint representatives in case of absence. Meetings must be recorded and may be taped or filmed. Deputy governors may also attend and speak at the meetings. The Central Bank must keep these recordings in its archives. The president fixes the salaries of the members from the private sector as well as that of the governor. The cabinet member's salary is fixed by law.

The Bank Secrecy Law

Here's a law that a lot of you will love. It's old (written in 1955, a reminder of the glorious Magsaysay Administration,) the famed RA 1405: the Bank Secrecy Law.

The aim of this law is to encourage the growth of banking and, in effect, provide greater business financing services to the people. It's short, only six (6) sections. But those sections can save you a lot of money.

Section 2 says all deposits, including bonds, are to be held in absolute confidence and nobody, including the government, can look into them except in the following cases:

1.) Upon your written consent (not verbal!)

2.) In cases of impeachment or misbehavior of government officials

3.) If the money is the subject matter of a case (such as in estate proceedings.)

4.) Disclosure of dormant deposits under the Unclaimed Balances Act (Act 3936)

5.) Inquiry/examination by the AMLC under lawful court order in cases of money laundering when probable cause exists (but a court order isn't needed in the following cases: kidnapping for ransom, hijacking, destructive arson, murder, acts of terrorism, drug trafficking and related activities)

6.) The BIR -but only in cases to determine the net estate of a deceased person and if there is a waiver on the part of the depositor

7.) Upon a court order in cases involving unexplained wealth under the Anti-graft and Corrupt Practices Act (RA 3019)

8.) On a court order where the money in the account is the subject of the case

Examination of all deposits and disclosure by bank personnel to unauthorized people is prohibited

Government people, including the BIR people, cannot look at your bank records except in any of the instances mentioned. So if the tax man picks up your bank passbook from your desk, you can bring him up on charges. All banks, as well as their personnel are also prohibited from disclosing their records except if any of the eight (8) instances are mentioned. Violations of this law are punished by a prison sentence of up to five (5) years, a fine of P20,000, or both.

So if your friendly neighborhood tax collector shows up in your office and sees your bankbook (or checkbook) lying on the table, please give him this friendly reminder.