Banking Laws and Jurisprudence 2013

CHAPTER 1: BANKS AND THE BUSINESS OF BANKING I. Declared Policy of the State III. Nature of Banking Business

Sec. 2, RA 8791 (General Banking Law of 2000):

State recognizes vital role of banks in providing an environment conducive to the sustained development of the national economy. The fiduciary nature of banking requires high standards of integrity and performance. State shall promote and maintain a stable and efficient banking and financial system that is: A. Globally competitive B. Dyamic; and C. Responsive to the demands of a developing economy II. Definition of Banks

A. Debtor-Creditor Relationship The relationship existing between a depositor and bank is that of a creditor and debtor not a depositor and a depositary! ART 1980 of Civil Code: Fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan. Contract of loan not deposit Consolidated Bank and Trust Corporation vs. CA: SC held: The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Depositor lends thebank money and the bank agrees to pay on demand. Savings deposit agreement-contract that determines the rights ad obligations o the parties.

Under the GBL: Banks are entities engaged in the

lending of funds obtained in the form of deposits (Remember: banks may engage n other activities allowed by law)

A bank is a moneyed institute founded to facilitate the borrowing, lending and safekeeping of money and to deal in notes, bills of exchange, and credits. A bank is an investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower. Any person engaged in business carried on banks is doing a banking business. (deposit, discount, circulation) A financial institution with power to issue its promissory notes intended to circulate as money or to receive the money of others on general deposit to form a joint fund that shall be used by the institution for its own benefit.

Serrano vs. Central Bank of the Phil: Bank deposits are in the nature of irregular deposits. They are really loans because the earn interest! Failure of bank to pay time deposits is failure to pay its obligation and not a breach of trust. Arising from a depositarys failure to return the subject matter of the deposit. Depositor is in reality a creditor.

Banking Laws and Jurisprudence 2013

B. Fiduciary Duty
Ordinary meaning: Involving trust, esp. with regard to the relationship between a trustee and a beneficiary GBL expressly imposes fiduciary duty on banks: An ordinary person usually maintains an account for security and convenience in settling his bills.

As for business entities, the bank is trusted to

help them in running their affairs, not only in the form of loans, but in their day-to-day transactions like encashing a check.

The fiduciary nature of banking requires high standards of integrity and performance
SC requires banks to treat the accounts of its

E. Impressed with Public Interest The business of banking is imbued with public interest. The stability of the banks largely

depositors with meticulous care, always having in mind the fiduciary nature of their relationship

Banks obligation to observe such is deemed written into every deposit agreement

depends on the confidence of the people in the honesty and efficiency of banks.
F. Degree of Diligence Simex International vs. CA: The bank is under obligation to treat the accounts of its depositors with meticulous care and always have in mind the fiduciary nature of banks. Article 1173 of the Civil Code: Diligence required is that prescribed by law or contract, absent such stipulation, diligence of a good father of the a family; Sec. 2 of GBL prescribes the statutory diligence required from banks: high standards of integrity and performance Higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

What is the diligence required?

Higher than that of a good father of a family. In short, extraordinary diligence due to its fiduciary nature. C. Not a Trust Agreement

Fiduciary nature of the relationship of the depositor and the bank does not convert the contract from a simple loan to a trust agreement because do not accept deposits to enrich depositors but to earn money for themselves. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of nonbank debtors under a similar contract of simple loan Law allows banks to offer lowest possible interest rate on depositors while charging the highest possible interest on borrowers. The differential belongs to the banks and not the depositors who are not cestui que trust of banks.

D.Indispensable Institution Banks is an indispensable institution in the modern world and plays vital role in the economic life of every citizen. People have come to regard them with respect, gratitude, and confidence. Even a humble wage-earner does not hesitate to entrust his life savings