4. Nature of Bank Deposits

NATURE OF BANK FUNDS AND BANK DEPOSITS

By the nature of its business, banks derive its funds principally from its deposit taking or quasi-banking operations. It also gets funds from the public when it acts as a trust entity under Chapter IX of the GBL¹.

Nature of Bank Funds

The bank can make use as its own, the money deposited. (Tick v. American Apothecaries Co, G.R. No. 43682, 31 March 1938)²

Nature of Bank Deposits

Bank deposits are in the nature of irregular deposits. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans. (NCC, Art. 1980)³

The fiduciary relationship does not "convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied." It simply means that the bank is obliged to observe "high standards of integrity and performance" in complying with its obligations under the contract of simple loan. (Goyanko v. United Coconut Planters Bank, G.R. No. 179096, 6 February 2013)⁴

Bank Deposit as a simple loan

Bank acquires ownership of money deposited; obligation to pay the amount, but no obligation to return the same money. (Guingona, Jr. v. City Fiscal of Manila, G.R. No. L-60033, 1984)

Payment to proper party-depositor (Fultron Iron Works Co. v. China Banking Corp., G.R. No. 32576, 1930)

Deposits are not preferred credits. (Central Bank v. Morfe, G.R. No. L-38427, 1975)

Bank has the right to set-off or compensation. (Gullas v. Philippine National Bank, G.R. No. 43191, 1935) Owner check: G.R. number corrected from 4391 to 43191.

Updated: Under the former Section 97 of the Tax Code, a bank with knowledge of a depositor's death was authorized to temporarily withhold withdrawals from the account (Allied Banking Corporation v. Sia, G.R. No. 195341, 9 November 2020). Under Section 97 of the Tax Code, as amended by RA 10963, the bank shall allow withdrawal from the deposit account, subject to a 6% final withholding tax.

Kinds of Deposits

• Savings Deposits. They are interest bearing deposits without a stated maturity.
• Negotiable Order of Withdrawal (NOW). They are interest bearing deposit accounts that combine the payable on demand feature and investment feature of savings accounts.
• Time Deposits. They are issued for a specific period of time (Sec. 216, MORB)⁵. Early withdrawal depends on the deposit terms and applicable banking rules; in Bpi Family Savings Bank, Inc. v. First Metro Investment Corporation, the parties agreed that the deposit was non-withdrawable for one year. (G.R. No. 132390, 21 May 2004)⁶
• Demand Deposits. They are those liabilities of the BSP and of other banks, which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks. Only banks duly authorized to do so may accept funds or create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall be subject to the control of the Monetary Board. (NCBA, Sec. 59)⁷

Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor. However, a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. (NCBA, Sec. 60)⁸