Aside from insurance coverage, read also: WHO IS ENTITLED TO THE INSURED DEPOSIT?
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Unfunded, fictitious or fraudulent deposit accounts are not covered by deposit insurance
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Deposit products constituting or emanating from unsafe and unsound banking practices are not covered by deposit insurance
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Trust accounts are also not covered by deposit insurance
Money is numbers and numbers never end. If it takes money to be happy, your search for happiness will never end. – Bob Marley
In a previous article, it was discussed that deposits of all banks as well as branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines, are insured with the Philippine Deposit Insurance Corporation (PDIC).
However, there are exclusions from deposit insurance coverage. When deposits are excluded, it simply means that PDIC is not liable for a deposit insurance.
What then are the exclusions from deposit insurance coverage?
The law says:
The PDIC shall not pay deposit insurance for the following accounts or transactions:
- Investment products such as bonds and securities, trust accounts, and other similar instruments;
- Deposit accounts or transactions which are fictitious or fraudulent as determined by PDIC;
- Deposit accounts or transactions determined to be constituting, and/or emanating from, unsafe and unsound banking practice/s;
- Deposits that are determined to be the proceeds of an unlawful activity.
For a better appreciation, let us take the case of Spouses Kishore Ladho Chugani and Prisha Kishore Chugani, et al., vs. Philippine Deposit Insurance Corporation, G.R. No. 230037, March 19, 2018.
In this case, Spouses Chugani (spouses) opened Time Deposit Accounts with Rural Bank of Mawab Inc., (bank) through inter-branch deposits to the accounts of the bank maintained in Metrobank and China Bank-Tagum, Davao Branches. Subsequently, Certificates of Time Deposits (CTDs) and official receipts were issued to them. When the bank was ordered closed by the Bangko Sentral ng Pilipinas, the spouses filed claims for the insurance of their time deposits.
The claims were denied by PDIC on the following grounds:
- The deposit accounts are not part of the bank’s outstanding deposit liabilities based on their records;
- The time deposits of the spouses are fraudulent;
- The amounts purportedly deposited by the spouses were credited to the personal account of Garan, the President of the bank who invited them to open Time Deposits.
The question now is, “Will the claim for deposit insurance prosper?”
The Supreme Court says:
No.
Under PDIC Regulatory Issuance No. 2011-02, for a deposit to be considered legitimate, it should be 1) received by a bank as a deposit in the usual course of business; 2) recorded in the books of the bank as such; 3) opened in accordance with the established forms and requirement of the Bangko Sentral ng Pilipinas and/or the PDIC.
In this case, it was discovered that the money allegedly placed by the spouses in the bank was in fact credited to the personal account of Garan, hence, they could not be construed as valid liabilities of bank to the spouses. Second, based on the bank records, the alleged deposits are not part of the bank’s outstanding liabilities. Third, the CTDs are not validly issued by the bank but were mere replicas of the unissued and used CTDs still included in the inventory of the bank. Further, the act of spouses in opening Time Deposits and subsequently depositing several amounts of money through inter-branch deposits with Metrobank and China Bank for the account of bank can hardly be considered as in the ordinary course of business.
Taken altogether, the Supreme Court sided with PDIC in denying the claim of the spouses for deposit insurance.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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