Is a stipulation in bank-loan documents giving the bank a right to set-off or apply the borrower’s loan (including interest) against his bank deposits, valid?
Yes. In Metropolitan Bank and Trust Company vs. Mariñas (G.R. No. 179105; 26 July 2010), the Supreme Court sustained the bank’s authority to make deductions from a borrower’s deposits and apply them to his loans and stipulated interest, pursuant to the Deeds of Assignment with Power of Attorney executed by the borrower, giving the bank such authority. The Court cited Article 1159 of the Civil Code which states that “obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith.” Not being contrary to law, such agreement between the bank and the borrower must be respected and given the force of law between them, said the Court. The Court, however, ruled that, considering the total amounts of said borrower’s deposits inclusive of interest earned vis-à-vis his total obligations, the total depletion of his accounts was unwarranted. The bank was ordered to account for whatever excess deductions made on the borrower’s accounts and to return them with earned interest. The Court stressed that “(a)s a business affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.”
To know more about said case and the Court’s ruling, click on Digested Cases under Tools.