Banking Laws and Jurisprudence Reviewer
Declaration of the state with regards to banking – recognize vital role of the banks to provide environment conducive to development of national economy o It also states that banks need high standards of integrity and performance Banks – entities engaged in the lending of funds obtained in the form of deposits (borrowing, lending, safe-keeping) Banks may engage in other activities allowed by the law other than lending. Nature of Banking Business 1. Debtor-Creditor Relationship • It is a contract of loan and not deposit • Contract between bank and depositor is 7. governed by the provisions of the NCC on simple loan (Consolidated Bank and Trust Corp vs. CA) 2. Fiduciary duty • Fiduciary relationship – bank’s obligation to observe high standard of integrity and performance.
It is not a trust agreement and failure to 10. ay a loan is not a breach of trust • It is not a trust agreement because banks do not accept deposits to enrich depositors but to earn for themselves 11. 4. Indispensable Institution • Has a vital role in economic life • Significance of banking institution to commercial transactions (Metropolitan Bank & Trust Co. vs. Cabilzo) 5. Impressed with public interest • Has public interest because people depend on the honesty and efficiency of banks • Stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. . Degree of diligence • Diligence higher than that of a good father. It must be extraordinary diligence • In Simex International vs. CA, the bank is under obligation to treat the accounts of its.
There is no law mandating banks to call up their clients whenever a significant amount shall be withdrawn from their account Duty to keep records Banks are not gratuitous bailees Banks not expected to be infallible • However, they must bear the loss for not discovering mistakes if there are established procedures not followed Dealing with registered lands • General Rule: mortgagee can rely on title and does not need to investigate further • Exception: mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and yet claim that he is in good faith • With banking institutions, mere reliance on the title is not enough as they need to investigate also
Where the mortgagee does not directly deal with the registered owner of real property, the law requires higher degree of prudence be exercised by the mortgagee (Abad vs. Guimba) 12. Banks may exclude persons in their premises 13. Charging interest for loans • It is considered the very core of the banking’s very existence Liability for Acts of Officers and Employees • A bank is liable for the wrongful acts of its officers done in the interest of the bank or dealings as bank representatives but not for acts outside the scope of their authority.
Exception – when its good reputation is besmirched by breach of fiduciary duty. In culpa contractual – recoverable if there is fraud or bad faith • Depositor may recover even if bank’s negligence not attended by bad faith if he suffered mental anguish, serious anxiety, etc. 6. Respondeat superior of employees • Command responsibility • A bank is bound by the negligence of its employees Classification of Banks Universal Banks – large commercial banks that can do both commercial and investment banking • They have the power of both commercial bank and investment house • Have the power to invest in non-allied enterprises 2. Commercial banks – general powers incident of corporation and can perform commercial banking • Does not have the power to invest in nonallied enterprises.