BANK DEPOSITS

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A bank has two basic functions, namely:
• acceptance of deposits from the public, and
• lending the funds obtained from deposits.

Absent any of these two functions, particularly that of deposit, the

institution is not a bank. Although other entities are in the business of
extending loans, yet they will not be considered performing banking
business if they do not accept deposits from the public.

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Contract of Loan - contract entered into between a bank and a
depositor. Art. 1980 of the NCC provides that-
• “fixed, savings and current deposits of money in banks and similar
institutions
• shall be governed by the provisions concerning simple loan”.

In addition to the above NCC Article, bank deposits are also covered
by special rules provided for by special laws and BSP regulations.

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 In China Banking Corp. vs. The Hon. C.A., 511 SCRA 110, 120,
defined a depositor as one who pays money into the bank in the usual
course of business, to be placed to his credit and subject to his check or
beneficiary held by the bank.

Since contracts are voluntary in nature, a bank may not be compelled

to accept deposits unless the action of the bank is shown to be
discriminatory. In fact the BSP, in compliance with the Anti-Money
Laundering Act, is quite strict on the acceptance of bank deposits as all
banks are required to adopt the Know-Your- Customer (KYC)
standards.

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 The relationship between the depositor and the bank is that of a creditor
and debtor. The obligation of the bank is to pay the creditor and not to
return exactly the same thing that was given.

Some pertinent jurisprudence on this creditor-debtor relationship-

• the bank can make use as its own the money deposited (Tan TiongTick
vs. American Apothecaries, 65 Phil. 414)

• officers of the bank cannot be held liable for estafa under Art. 315 (1)
(b)of the Revised Penal Code for authorizing the use of the money
deposited, even if the bank failed to return the amount deposited. The
money that is deposited is not held in trust by the bank (Guingona vs.
City Fiscal of Mla, 128SCRA 577)
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• 3rd persons who may have a right to the money deposited cannot hold the bank
responsible unless there is a court order or garnishment. The duty of the bank is
to its creditor-depositor and not to 3rd persons (Fulton Iron Works Co. vs.
China Banking Corp., G.R. No. 32576, Nov. 6, 1930). If a 3rd person has a
valid right over the money deposited, he must prove the same before a court of
competent jurisdiction.

• bank deposits are not preferred credits under the Civil Code (Central Bank vs.
Morfe, 63 SCRA 114)

• the bank has the right to compensation. It can set-off the deposits with the
indebtedness of the depositor that are due and demandable (Gullas vs. PNB, 62
SCRA 519).
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 Likewise, it can set-off the value of dishonored checks that were
previously credited (BPI vs. C.A., et. al., G.R. No. 136202, Jan. 25,
2007).

NOTE:
• bank deposit not a trust under the NCC. The amount is delivered to the
bank by the depositor not as trustor but as a creditor. In an ordinary trust
agreement, the trustee does not become the owner of the property; whereas in
a deposit the bank becomes the owner of the cash that was deposited subject to
the obligation to pay the depositor. Unlike an ordinary trustee who cannot use
the money held in trust for his own benefit, the bank is free to use the money
deposited for its own use.

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LIABILITY FOR TRUST ACCOUNT
While deposits are not trust agreements with the bank, an account may
be opened in trust for another person. The deposit may be made
whereby the depositor is the trustee; the depositor holds the deposit in
his name in trust for a beneficiary. The relationship is still mutuum while
the trust agreement is between the depositor and the third person
beneficiary. Nevertheless, a bank cannot stop the withdrawal of funds
from an account on the basis of an allegation that the money deposited
in the account is held in trust by the depositor for another person and
that the withdrawal is in breach of such trust. (Fulton Iron Works Co. vs.
China Banking Corporation, et al. G.R. No. 32576, November 6, 1930)

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ADVERSE CLAIM
Existing laws do not impose a duty on banks to freeze the deposit
upon a mere notice of adverse claim; banks first require either a court
order or an indemnity bond. (Sps. Seferino vs. FEBTC, G.R. No.
171845, October 10, 2012)

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DEGREE OF DILIGENCE REQUIRED OF BANKS

The time-honored AND STILL CURRENT, judicial doctrine on the

degree of bank diligence is that every bank, in dealing with the public
must exercise the

     - HIGHEST DEGREE OF DILIGENCE

     - HIGHEST DEGREE OF CARE OR
     - EXTRAORDINARY DILIGENCE

The diligence of an ordinary prudent man, or ordinary diligence, is not

enough.
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The conduct of customer due to diligence by banks is required, which
includes “identifying the customer and verifying the true identity of the
customer based on official documents or other reliable, independent
source documents, data or information. In case of corporate and
juridical entities, verifying their legal existence and organizational
structure, as well as the authority and identification of all persons
purporting to act on their behalf.” (Section X806 Customer Due
Diligence, MORB)

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The reasons for the strict and highest standard
required all because:

1. the business of banking is so impressed with

PUBLIC INTEREST,
2. where TRUST AND CONFIDENCE of the public in
general is of paramount interest, and
3. arising from the FIDUCIARY ATURE of its
function

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With particular reference to deposits, the doctrine is “a
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship,” whether such
account consists only of a few hundred pesos or of
millions of pesos.
(p. 43 “Legal Essays on Banking” The Viray Lectures by Atty.
Antonio V. Viray)

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 “Nevertheless, even if we assume that both parties were guilty of
negligent act that led to the loss, petitioner still emerge as the party
foremost liable in this case. In instances were both parties are at fault,
this Court has consistently applied the doctrine of last clear chance in
order to assign liability.

It is the bank which had the clear chance to stop the fraudulent
encashment of the subject checks had it exercised due diligence and
followed the proper and regular banking procedures in clearing checks.
The one who had a last clear opportunity to avoid the impending harm
but failed to do so is chargeable with the consequences thereof.” (PNB
vs. Tanojera, 736 SCRA 430)

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QUALIFIED THEFT AND ESTAFE OF EMPLOYEES AND OFFICERS

As previously noted, the relationship between banks and depositors has been held to be that of
creditor and debtor. Hence, the bank acquires ownership of the money deposited by its clients. Taking
of the amounts deposited by the employees of the bank may amount to Qualified Theft of Estafa. even
if what was taken was the money deposited by the client, the crime is no longer against the client-
depositor but against the bank that already owns the same money/amounts.

The employees of the bank, who are entrusted with the possession of money deposited in a bank,
occupy positions of confidence. In a long line of cases involving Qualified Theft, the Supreme Court
has firmly established the nature of possession by the bank of the money deposited as owner and the
duties being performed by its employees who have custody of the money or have come into possession
of it. Tellers, cahiers, bookkeepers and other employees of a ban who come into possession of the
monies deposited therein enjoy the confidence reposed in them by their employer. (People of the Phil.
vs. Teresita Puig, G.R. No. 1736521-765, August 28, 2008) 15
Unilateral Freezing of Account, Not Allowed-
The person whose name appears in the passbook as depositor and
other bank documents is presumed to be the owner of the money in the
bank account. The depositary bank does not have a unilateral right to
freeze the accounts of its depositor based on its mere suspicion that the
funds therein were proceeds of fraudulent acts.(BPI Family Bank vs.
Amado Franco and Kurtis of Appeals, G.R. No. 123498, Nov. 23, 2007)

But a bank must not release the funds if the same was already
garnished at the instance of third persons.

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 COMMON PREFERRED CREDIT
Bank deposits are insured under Republic Act No. 3591 as mended (PDIC Law for
short). Hence, in the event of closure of an insured bank, payment of the insured
deposits on such closed bank shall be made by the PDIC. (Section 19, R.A. No. 3591
& amended by R.A. No. 10846) The amount that is not paid by the PDIC shall be
claimed in the liquidation proceedings following the rules on Concurrence and
Preference of Credits under the New Civil Code. (Section 20, R.A. No. 3591 as
amended)
Section 20 of the PDIC Law provides that a “depositor shall retain his or her claim for
any uninsured portion of his or her deposit, which legal preference shall be the same as
that of the subrogated claim of the Corporation for its payment of insured deposits. All
payments by the Corporation of insured deposits in closed banks partake the nature of
public funds, and as such, must be considered a preferred credit in order to preference
under Article 2244(9) of the New Civil Code. (Section 20, R.A. No. 3591 as amended)
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Process of Depositing in a Bank Account

In Phil. Bank of Commerce vs. C.A., G.R.No. 97626, March 14, 1997, The Court described the process as
follows:

1. current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by
the depositor, the latter’s agent or representative;

2. who (depositor) indicates therein the current account number to which the deposit is to be credited;

3. the name of the depositor or current account holder,

4. the date of the deposit,

5. and the amount of the deposit either in cash or checks.

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Uncollected Deposits
It was observed that the payment of the amount of the checks
without previously clearing the checks with the drawee bank especially
where the drawee bank is a foreign bank and that the checks involve
huge amounts is not normal or ordinary bank practice. (Philippine
National Bank v. Chea Chee Chong, G.R. Nos. 170865 and 170892,
April 25, 2012). The regulations promulgated by the BSP disallow
drawee banks from honoring checks on uncollected deposits. (PNB vs.
Chea Chee Chong, G.R. Nos. 170865 and 170892, April 25, 2012)

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Countermanding
The drawer may countermand payment if he has a valid defense against the
holder of the check. Thus, countermanding of a check is proper where the
payee failed to deliver the goods that he was supposed to deliver. (Bataan
Cigar and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March
3, 1994, 230 SCRA 643, 649).
If there was no valid reason to countermand payment, the drawee is still
contractually obligated to dishonor the check on the basis of the stop
payment order. However, if he has no valid defense, the drawer remains
liable and he is not released from the legal obligation that he contracted.
(Chua Tian Un v. Yu Hock Tieng, CA-G.R. No. 234310-R, February 29, 1964,
1964-C; Velayo’s Digest).
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• The deposit slips are prepared by the depositor in duplicate- the
original is retained by the bank while the duplicate copy is returned or
given to the depositor.

• Also, the bank may directly credit the account of the depositor
whenever the bank is obligated to pay an amount to the same
depositor.

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Proof of Deposit
Deposit slips serve as proof that an amount was deposited to an
account. In Prudential Bank v. Chonney Lim, (Villanon v. Court of
Appeals, 116 SCAD 499, 319 SCRA 530 (1999)), two deposit slips
were presented each bearing the amount of P34,000.00. One deposit
slip was dated March 15, 1988 and another was dated March 16. 1988.
The bank claimed that one of the slips was only a duplicate of the
other. However, the Supreme Court rejected the submission of the bank
observing that the deposit slips reflect different denominations
indicating that they were not prepared simultaneously.

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 In another case - Firestone Tire and Rubber Co. of the Phil. vs. C.A.,
353 SCRA 600, 601, a bank was likewise made liable when it accepted
withdrawal slips for deposits which turned out to be unfunded. The fact
that withdrawal slips were honored in the past does not excuse it from
liability. The bank bears the risk attendant to the acceptance of the
withdrawal slips.

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Withdrawals –

• for cash deposits, anytime withdrawals subject to prescribed

procedures

• for check deposits, withdrawal may only be allowed after drawee

bank clears the amount covered by the check.

• Demand Deposits - withdrawable through checks

• Savings Deposits - withdrawable through withdrawal slips

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 With Savings Deposits, depositor’s passbook must be presented with
the withdrawal slip. A bank is negligent if it allows withdrawal without
requiring the presentation of the passbook (BPI vs. C.A., 326 SCRA
200)

Withdrawals from a bank account can be made upon the authority of

the depositor as reflected in the withdrawal slip. However, a bank is
liable if it allows withdrawal of funds on the basis of forged signatures
in the withdrawal slips.

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 A bank which allows unauthorised withdrawals can be required to
return the amount illegally withdrawn plus 12%/annum interest in the
absence of interest stipulation from the time of demand (Citibank N.A.
vs. Sps. Luis & Carmelita Cabamongan, 488 SCRA, 517, 533-534).

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 Withdrawal Through Electronic Instructions
A bank may also agree with its depositor that withdrawal of funds may be made
through electronic instructions or messages. In one case, the electronic messages were
received by the bank from its investor-clients abroad instructing the former to debit the
latter’s local and foreign currency accounts and to pay the purchase price of shares of
stock or investment in securities. The Court ruled that the electronic messages are not
negotiable bills of exchange under Section 1 of the Negotiable Instruments Law. The
electronic messages are not signed by the investor-clients; they do not contain an
unconditional order to pay a sum certain in money as the payment is supposed to come
from a specific fund or account of the investor-clients; and, they are not payable to order
or bearer but to a specifically designated third party. (The Hongkong and Shanghai Bank
Corp. v. Commissioner of Internal Revenue, G.R. No. 1666018, June 4, 2014.)

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 CASH CARD OR ATM CARD

Deposits may also be withdrawn through Automated Teller Machines (ATM)

using cash cards. The PIN is encoded in the card to facilitate the withdrawal through
ATM.

In Far East Bank & Trust Company v. Chante, (G.R. No. 170598, October 9,
2013), the depositor alleged that there were fraudulent withdrawals from the depositor’s
account through the ATM. The Supreme Court concluded that the bank was liable
because the entries reflecting withdrawals resulted by reason of the intervention of a
system bug that facilitated the purported withdrawal.
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The Supreme Court explained that the bank must rely on the strength of
its own evidence instead of upon the weakness of the depositor’s
evidence. The bank’s burden of proof requires it to preponderantly
demonstrate that the depositor’s ATM card had been used to make the
withdrawals, and that the depositor used ATM card and PIN by himself
or by another person to make the fraudulent withdrawals. This rule is
consistent with the duty and responsibility of the bank to ensure the
safety of the funds it holds in trust for its depositors. The bank “could not
avoid the duty or evade the responsibility because it alone should bear
the price for the fraud resulting from the system bug on account of its
exclusive control of its computer system.

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Types of Deposit Account
There is also a third classification of bank deposits and that
is by deposit account or in relation to the name/s in which the accounts
are held. Thus, a bank account may be in the name of a single person-
natural or juridical, known as a single account, or it may be in the name
of two or more persons, otherwise known as a joint account. An account
may also be a “By” account, “In Trust For Account” (ITF) of “For the
Account of” (FAO) another person.

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Anonymous Accounts
Circular No. 251, which was issued by the BSP on July 7, 2000
to combat money laundering, and Section 9 (a) of the AMLA of 2001
(R.A. No. 9160) prohibit anonymous accounts or accounts under
fictitious names. In fact, when accounts are opened, banks must employ
a system to establish the identity of the depositor. In addition, at least
three specimen signatures of the depositor are required. (Subsection
X262.1, MORB)

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Numbered Accounts
As mentioned above, Section 9(a) of R.A. No. 1960 provides
for absolute prohibition of anonymous accounts, accounts under
fictitious names, and all other similar accounts. However, the same
provision provides that “Peso and foreign currency non-checking
numbered accounts shall be allowed. The BSP may conduct annual
testing solely limited to the determination of the existence and true
identity of the owners of such accounts.”

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DECEASED DEPOSITOR
With the enactment of the TRAIN LAW, (R.A. No. 10963)
however, a bank may now allow any withdrawal from the bank deposit
account of the deceased depositor without the need for a clearance or
certificate of payment of estate tax issued by the Bureau of Internal
Revenue (BIR). The bank that allows such withdrawal is required
though to deduct a 6% final withholding tax from the deposit account.

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CLOSURE OF ACCOUNT
The bank can expressly reserve the right to close an account
(even without prior notice) whenever certain identified events occur. For
example, the bank can reverse the right to close a checking account if
the depositor frequently draws checks against insufficient funds and/or
uncollected deposits. (Far East Bank and Trust Company v.
Themistocles Pacila, Jr., G.R. No. 157314, July 20, 2005, 465 SCRA
372, 382-383.)

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