Jesily Darla Mae G. Gutierrez 2-D Banking Laws Atty.

Efren Vincent Dizon

Chapter 1 Banks and Business of Banking

I. NATURE OF BANKING BUSINESS

A. Treatment of Accounts with Meticulous Care

A bank is under obligation to treat the accounts of its depositors with meticulous
care and with the utmost fidelity, whether such account consists only of a few hundred
pesos or of millions.

However, there is no law mandating banks to call up their clients whenever a

significant amount shall be withdrawn from their accounts.

B. Duty to keep records

Banks have fiduciary duty to keep efficiently a record of its transactions with its
depositors which must be true and accurate.
The making of any false entry or the willful omission of entries relevant to any
transaction is a ground for the imposition of administrative sanction and the
disqualification from office of any director or officer responsible thereof.
C. Banks are not gratuitous bailees

They run for gain and solicit deposits in order that they can use the money for that
very purpose.
D. Banks not expected to be infallible

The general rule is that banks are not expected to be infallible. However, there is
an exception, it must bear the blame for not discovering mistakes if there are established
procedures and the same has not been followed.

E. Dealing with Registered Lands

Banks must exercise more care and prudence in dealing with registered lands, than
private individuals, for their business is one affected with public trust. If there is absence
 of good faith, banks are denied the protective mantle of the Land Registration Statute Act
496 (Land Registration Law)
A mortgagee-bank must exercise due diligence before entering into said contract.
Judicial notice is taken of the standard practice for banks, before approving a loan, to send
representatives to the premises of the Land offered as collateral and to investigate who the
real owners thereof are.
Doctrine of Mortgagee in Good Faith
All persons, in dealing with property covered by the Torrens Certificate of Title,
are not required to go beyond what appears on the face of the title. A mortgagee has a right
to rely in good faith on the certificate of title of the mortgagor of the property given as
security, and in the absence of any sign that might arouse suspicion, the mortgagee has no
obligation to undertake further investigation.(Cavite Development Bank vs. Spouses Lim).
However, 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)
A bank that failed to observe due diligence cannot be accorded the status of bona
fide mortgagee.
F. Banks may exclude persons in their premises

The banking business will only thrive as long as it maintains the trust and
confidence of its customers or clients. The very nature of their work, the degree of
responsibility, care and trustworthiness expected of officials and employees of the bank is
far greater than those of ordinary officers and employees on the other business firms.
No effort must be spared by banks and their officers and employees to ensure and
preserve the trust and confidence of the general public and its customers or clients as well
as the integrity of its records and the the safety and well-being of its customers or clients
while in its premises.
Hence, banks may impose reasonable conditions or limitations to access by non-
employees to its premises and records.

G. Charging of Interest for Loans

The charging of interest for loans forms a very essential and a fundamental element
of the banking business. In fact, it may be considered to be the very core of the banking's
existence or being.