BANKING.docx

State recognizes the fiduciary nature of banking that

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State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals , holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks — that banks must observe "high standards of integrity and performance" in servicing their depositors. 69 (Citations omitted) The high degree of diligence required of banks equally holds true in their dealing with mortgaged real properties, and subsequently acquired through foreclosure, such as the Unit purchased by petitioner. In the same way that banks are "presumed to be familiar with the rules on land registration," given that they are in the business of extending loans secured by real estate mortgage, 70 banks are also expected to exercise the highest degree of diligence. This is especially true when investigating real properties offered as security, since they are aware that such property may be passed on to an innocent purchaser in the event of foreclosure. Indeed, "the ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of a bank's operations": 71 When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business is impressed with public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of a bank's operations. It is of judicial notice
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