Depositary Relationships - 09Aug2022 PDF

Depositary Relationships Law on Depositary Relationships Definition Distinguished from CASA, safety deposit box General Duties of Depositary Illustrative examples and jurisprudence  Origins “Deposit” came from the Roman Law term “depositum” which pertains t...

Depositary Relationships Law on Depositary Relationships Definition Distinguished from CASA, safety deposit box General Duties of Depositary Illustrative examples and jurisprudence  Origins “Deposit” came from the Roman Law term “depositum” which pertains to the naked bailment of goods, to be kept for the bailor [depositor] and to be returned when he shall require it. DEPO′SITUM. The notion of depositum is this: a moveable thing is given by one man to another to keep until it is demanded back... The party who makes the depositum [or deposit] is called deponens or depositor, and he who receives the thing is called depositarius [or depositary]. The act of deposit may be purely voluntary; or it may be from necessity, as in the case of fire, shipwreck, or other casualty. The depositarius is bound to take care of the thing which he has consented to receive. He cannot use the thing unless he has permission to use it, either by express words or by necessary implication. (Long, George. “A Dictionary of Greek and Roman Antiquities”, p.394, London, 1875.)  Definition under the Civil Code A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. (Art. 1962, Civil Code (CC))  Examples - Baggage counter (malls, airplanes) -Valet parking - Entry to premises  Parties to the Relationship 1. Depositor / Deponens – The person delivering the thing for safekeeping 2. Depositary / Depositarius – the party who receives the thing with the obligation of safely keeping the thing and returning the same Depository – the place where the thing is safely kept  Primary purpose: safekeeping Temporary transfer of possession Salient Retention of ownership by depositor Features of Deposit cannot be used, except for preservation Depositary Safekeeping is for the benefit of the depositor Contracts Demandable at will Return of exact same thing  Principal Purpose If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (Art. 1962, CC)  Types of Depositary Contracts 1. Judicial – court order 2. Extrajudicial - Voluntary – at will; contractual - Involuntary - on occasion of calamity, etc. (CC)  Deposit vs. Current/Savings Account Deposit CASA / Bank Deposit Purpose Safekeeping Consumption/Use Object Any object Funds Ownership over the Retained by depositor, Transferred to the bank, thing hence no commingling hence commingling Control over the thing Transferred to the Transferred to the bank depositary Term Return at will No pre-termination Duty to the client Return the same thing Pay equivalent amount Governing law Sec.55.1 (b) GBL RA 1405 Set-off with loans Not allowed Allowed In bank deposits, there is a mingling of the deposited money with the general funds of the bank, and the relation of debtor and creditor; accordingly, the legal title passes to the bank and the bank has the right to set-off… [Whereas], when a bank contracts with a depositor to keep the property deposited separate from its general funds, and to return the identical thing deposited, the relation created is bailment [for safekeeping]… (R. D. S., Jr. “Banks and Banking: Bank Deposits: Specific Deposit: Trust Fund.” California Law Review, vol. 12, no. 3, 1924, pp. 214–217)  Fixed, savings, and current deposits of money in banks and similar institutions shall be Bank “Deposits” governed by the provisions concerning simple loan. (Art. 1980, CC)  Compensation / Set-off Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or a bailee in commodatum. (Art. 1287, CC)  Statutory Authority Sec. 53. Other Banking Services. In addition to the operations specifically authorized in this Act, a bank may perform the following services: 53.1. Receive in custody funds, documents and valuable objects; 53.2. Act as financial agent and buy and sell, by order of their customers, shares, evidence of indebtedness and all types of securities; (See Art. 1975, CC)  Statutory Authority 53.3 Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; 53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management / advisory / consultancy accounts; and 53.5. Rent out safety deposit boxes.  Statutory Authority (Cont’d) The bank shall perform the services permitted under 53.1, 53.2, 53.3 and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities which it receives duly separate from the bank’s own assets and liabilities. (RA 8791, General Banking Law of 2000)  Art. 1975. par. 2, CC: “The above provision (on deposits) shall not apply to contracts for the rent of safety deposit boxes.” Safety Deposit Safe deposit box arrangement is a special kind of deposit (Lu Zan Sia Boxes vs. Court of Appeals, 222 SCRA 24) Sec. 53.5 as worded and the last paragraph of Sec. 53 clarified that the safety deposit box services is a lease arrangement.  In this case, it is necessary to distinguish bailment from a lease. When personal Lease vs. property is left upon another’s premises Depositary under circumstances from which either Contract relation might possibly be predicated, the test is whether or not the person leaving the property has made such a delivery as to amount to a relinquishment, for the Zweere v. duration of the relation, of his exclusive Thibault, 112 possession, control and dominion over Vt. 264 (1942) the property, so that the person upon whose premises it is left can exclude, within limits of the agreement, the possession of all others.  If he has, the general rule is that the transaction is bailment. On the other Lease vs. hand, if there is no such delivery and Depositary relinquishment of exclusive possession, Contract and his control and dominion over the goods is dependent in no degree upon the co-operation of the owner of the Zweere v. premises, and his access thereto is in no Thibault, 112 wise subject to the latter’s control, it is generally held that he is a tenant or lessee Vt. 264 (1942) of the space upon the premises where the [cont’d] goods are kept…  In such arrangement, the bank keep in their vaults numbered tiers of safety deposit boxes, each of which can be opened only Rationale on by the use of two keys. The master key is safety deposit retained by the [bank], while the other key box as lease is delivered to the [renter]. The parties enter into a contract by which the [bank] (Tay, Alice Erh-Soon. undertake to allow no one but the renter or “Bailment and the Deposit for his authorized agent access to the box and Safekeeping.” Malaya to safeguard whatever property may be Law Review, vol. 6, no. 2, 1964, pp. 229–249) deposited in the box. The renter has the right to demand access at certain times and has no duty to inform the [bank] of what is placed into the box; the [bank], …  on the other hand, reserves the right to revoke his power to use the box at any time Rationale on upon notice and imposes rules relating safety deposit generally to the use of the box and to the access to it. The master key held by the bank box as lease is not a means of allowing the bank access to (Tay, Alice Erh-Soon. the box; it is merely a precautionary device, “Bailment and the conceptually or practically nothing but an Deposit for extension of its means of guarding against Safekeeping.” Malaya Law Review, vol. 6, no. wrongful intruders. The bank’s power to 2, 1964, pp. 229–249) exclude the renter of the safety deposit box does not count as evidence for its possession of the..  internal volume of the box and its contents Rationale on because [such]..power is exercised regardless of whether any articles are deposited in the safety deposit renter’s box or not… [I]t is part of [the] general box as lease arrangement for safeguarding the premises.. as part of the [bank’s] undertaking to [the (Tay, Alice Erh-Soon. “Bailment and the renter’s] and of the normal vigilance Deposit for associated with its business… [T]he [bank’s] Safekeeping.” Malaya power to exclude the depositor is not... to Law Review, vol. 6, no. 2, 1964, pp. 229–249) exclude him from actual control of the articles deposited, as required for bailment, but… to exclude him from reaching these articles.  Statutory Authority Sec. 53. Other Banking Services. In addition to the operations specifically authorized in this Act, a bank may perform the following services: Xxx 53.5. Rent out safety deposit boxes. xxx Trust Entity’s Depositary Services Safekeeping Custodian Escrow Corporate depositary Protective Committees Voting Trust  Safekeeping Arrangement Duties: Receive the property; Issue a receipt for it; Keep it safely in an appropriate safe deposit vault or box; Deliver it on demand to the depositor or his order.  Safekeeping Arrangement Responsibilities: To protect and preserve the thing and keep it safely as a prudent man would safe keep similar property; To exercise due care in delivering the thing back to the owner or his order. Absence of any of the above is negligence.  In the present case, [X], while he was clerk of court, clearly received the firearm from [Y] and marked it as Office of the an exhibit, based on the acknowledgment receipt [X] himself admittedly signed. He, however, failed to Court explain the whereabouts of the firearm after receiving Administrator it and consequently, lost it under his custody. As court vs. Inmenzo custodian, it was his responsibility to ensure that exhibits are safely kept and the same are readily (A.M. No. P- available upon the request of the parties or order of 16-3617, 6 June the court… It is likewise his duty to inform the judge of 2018) the necessary repair of the dilapidated storage facilities of the court. His attempt to escape responsibility over the loss of the exhibit under his care and custody must therefore fail.  Negligence is the omission to do something that a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do. Bintudan vs. Stated otherwise, negligence is want of· care COA required by the circumstances. Negligence is, therefore, a relative or comparative concept. Its (G.R. No. application depends upon the situation the parties 211937, 31 are in, and the degree of care and vigilance which March 2017) the prevailing circumstances reasonably require. Conformably with this understanding of negligence, the diligence the law requires of an individual to observe and exercise varies according to the nature of the situation in which she happens to be, and the importance of the act that she has to perform.  The findings show that the petitioner was severely negligent in the performance of her duties.. She … had withdrawn from a nearby Bintudan vs. bank the funds for salaries… and had placed COA the funds inside the safety vault despite the (G.R. No. number combination having been left posted at 211937, 31 safety vault's very door… Although she could March 2017) be exonerated from liability in cases of theft and loss caused by force majeure, she must be able to establish that the loss was not by reason of her negligence.  Indeed, the robbers did not anymore have to employ force to open the vault and ransack the contents. That they had an Bintudan vs. easy time carting away the funds was due COA to her negligence... Simple prudence on her (G.R. No. part would have instructed her to remove 211937, 31 the number combination from the safety March 2017) vault's door; yet, she did not. Her leaving the number combination public in that manner defeated the purpose of having the vault to begin with. She thus was guilty of negligence.  Custodianship The depositary holding certificate, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. (Art. 1975, CC)  Custodianship Safekeeping With administrative work and active duties to Keep it in secured place preserve the value of the thing Certificates, bonds or Documents, jewelries, securities paintings, car, etc.  Securities Custodian A BSP accredited financial institution under BSP supervision that is authorized to engage in investment management or trust business which have complied with the BSP pre-qualification requirements Prior Monetary Board approval Sec. 431 and Appendix 66 of BSP MORB  Securities Custodian Functions and responsibilities: Safekeeps the securities of the client Holds the title to the securities in a nominee capacity Executes, purchase, sale and other instructions Performs at least a monthly reconciliation to ensure that all positions are properly recorded and accounted for  Securities Custodian Functions and responsibilities (cont’d): Confirms tax withheld Represents clients in corporate actions in accordance with its direction/instruction Conducts mark-to-market valuation and statement rendition Does earmarking of encumbrances or liens such as, but not limited to, Deeds of Assignment and court orders  Securities Custodian Functions and responsibilities (cont’d): Acts as a collecting and paying agent in respect of dividends, interest earnings or proceeds from the sale/redemption/maturity of securities held under custodianship Immediately inform the securities owner all collections received and payments made with respect to the securities under custody  Independence of Securities Custodian A BSP-accredited securities custodian must be a third party that does not belong to the same financial conglomerate or banking group as that of the issuer and seller of securities held under custody. (BSP MORB) Avoid potential conflict of interest Depositary Relationships  Escrow Account The safekeeping of money, securities, documents or other property or evidences of property deposited by two or more persons with another person, to be delivered on a certain contingency or the occurrence of a specified event (Estates and Trusts, Stephenson). [A]n escrow is a written instrument representing a legal obligation which is deposited by a grantor, obligor, or promisor with a third party with instructions that it be delivered to the grantee, obligee, or promisee upon the fulfillment of a condition... Prior to the fulfillment or failure of the condition governing the escrow, the parties each have a contingent interest in the escrowed property… Upon the fulfillment or failure of the condition, one party’s contingent interest is extinguished. (Byrne, Thomas M. “Escrows and Bankruptcy.” The Business Lawyer, vol. 48, no. 2, 1993, pp. 761–777. JSTOR, www.jstor.org/stable/40687388. ) Escrow arrangements are a common feature of commercial transaction. Because a simultaneous exchange of all of the consideration being conveyed in the transaction is not always desirable or possible, an escrow arrangement often is used to allow the parties to complete the transaction in all respects, except for one or more unfulfilled conditions. Final disbursement of the consideration is held in abeyance pending fulfillment of the conditions. The most appealing feature of an escrow arrangement is that it reduces the risk of non- performance by the parties by placing the transaction beyond their reach. Except for the unfulfilled conditions, there is no turning back. (Byrne, Thomas M., ibid.)  Question Can the court require litigants (or parties to the case) to establish an escrow account?  A sold property to B, who leased the same property to C. Province of X, another person, sought to nullify Bataan vs. the sale of the property between A PCGG and B and requested the court to (G.R. No. require C to deposit the rentals in 129995, Oct. escrow. 19, 2001) Can the court require the deposit of the rentals in escrow?  In our jurisdiction, an escrow order issued by a court of law may find ample basis and support in the Province of court’s intrinsic power to issue orders Bataan vs. and other ancillary writs and PCGG processes incidental or reasonably (G.R. No. necessary to the exercise of its main 129995, Oct. jurisdiction. Evidently, judicial power 19, 2001) connotes certain incidental and inherent attributes reasonably necessary for an effective administration of justice…  To be sure, placing property in Province of litigation under judicial possession.. Bataan vs. is an ancient and accepted PCGG procedure. Consequently, we find no (G.R. No. cogency to disturb the questioned 129995, Oct. orders of the lower court and in 19, 2001) effect uphold the propriety of the subject escrow orders.  Terms Escrow - things delivered Escrow Agreement - terms of the agreement of deposit Escrow Agent - person who receives the thing for safekeeping and obliges to deliver the same upon the occurrence of the specified event Salient Features of an Escrow Arrangement Escrow arrangements ordinarily are ancillary to other transactions… To be valid, a delivery in escrow must be made with instructions to a third party who takes delivery and agrees to act as escrow agent. The instructions must specify the condition upon which the escrowed property is to be delivered or returned, pursuant to the primary agreement… If there is no condition for delivery specified, the deposit is a mere bailment. An escrow is also invalid if the depositing party does not relinquish control of the deposited property… The disposition of the deposited property must turn on upon the fulfillment or failure of the condition governing the escrow... (Byrne, Thomas M., supra.)  Common Escrow Arrangements BIR Escrow - Exemption from the payment of the capital gains tax (CGT) - Sale of principal residence - Use of proceeds for acquisition of new principal residence - Within 18 months - Escrow equivalent to 6% CGT - BIR Order of Release / Order of Forfeiture  Common Escrow Arrangements POEA Escrow - Accreditation of recruitment agencies with POEA - Minimum of ₱1.0 Million - For claims against the recruitment agency - Releases through garnishment orders either from POEA, NLRC or court - Insufficiency is ground for revocation of POEA license  Common Escrow Arrangements Escrow for Source Codes - Source codes of IT application or program - Release may be upon termination of maintenance agreement with the IT provider or developer, closure or non-performance of the IT company, etc.  Common Escrow Arrangements Escrow for Sale of Real Property - Buyer withholds portion of the purchase price - Release subject to conditions, which may include delivery of clean title in the name of the buyer or the peaceful possession of the property  [U]nder modern theories of law, the term escrow is not limited in its application to Province of deeds [or instruments for the conveyance Bataan vs. of land], but is applied to the deposit of any PCGG written instrument with a third person. (G.R. No. Particular instruments which have been held to be the subject of an escrow include 129995, Oct. bonds or covenants, deeds, mortgages, oil 19, 2001) and gas leases, contracts for the sale of land or for the purchase of personal property, …  … corporate stocks and stock Province of subscriptions, promissory notes or other Bataan vs. commercial paper, insurance applications and policies, will-contest cases, PCGG indentures of apprenticeship, contracts (G.R. No. for the settlement of receipts assigning 129995, Oct. concessions and discontinuances and 19, 2001) releases of causes of action. Moreover,… money may [also] be delivered in escrow. In summary, various transactions can be covered by an escrow. Where there are conflicting interest between the contracting parties, a third disinterested party is needed to balance and protect the conflicting interests and who can ensure that the contracting parties are mutually benefitted in the transaction.  Duties of Escrow Agent Perform definite instructions Leaving nothing to Escrow Agent’s discretion and nothing for later arrangement or negotiation between the other two parties  Duties of Escrow Agent Purely ministerial Safekeep and deliver in accordance with definite instructions in the escrow agreement. Art. 1962: “xxx… If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.” (CC)  Question Can the court change the purpose and the conditions for the release of the escrow?  A and B entered into a contract of sale of property. They agreed that A shall deliver the remainder of the purchase price in an escrow account, which shall be released in favor of B, City of Cebu upon the latter’s delivery of the clean titles to vs. Del Rosario the property under the name of A. C, another (G.R. No. party, sought the nullification of the sale and 169341, Nov. claimed damages from A and B. 22, 2006) Issue: Can the court require the release of the escrow in favor of C as payment for damages, thus changing the purpose of the funds in escrow?  [A’s] escrow account … was for the payment of the purchase price of the property, and under Contract to Buy and Sell and the Agreement, the said account would be remitted to [B] only City of Cebu after delivery of clean titles over the property vs. Del Rosario to [A]... However, the RTC ordered that the (G.R. No. proceeds of the escrow account be remitted to 169341, Nov. [C] as reasonable rentals for the property… 22, 2006) [T]his is contrary to the terms and conditions of the Contract to Buy and Sell and Agreement [between A and B]... Hence the RTC order was set aside and the funds released to [C] was ordered to be returned to the escrow account. Question: Can funds in escrow be subjected to garnishment? Answer: - If private funds, yes - If public funds, no (general rule)  The general rule is that government funds cannot be garnished… The rule Republic of the is and has always been that all Phils. vs. government funds deposited … any Tatlonghari, et other official depositary of the al., (G.R. No. Philippine Government by any of its 170458, Nov. agencies or instrumentalities … may 23, 2015) not be subject to garnishment or levy, in the absence of a corresponding appropriation as required by law…  The rule is based on obvious considerations of public policy. The Republic of the functions and public services Phils. vs. rendered by the State cannot be Tatlonghari, et allowed to be paralyzed or disrupted al., (G.R. No. by the diversion of public funds from 170458, Nov. their legitimate and specific objects, 23, 2015) as appropriated by law… [Since] it is clear that the subject funds…are private funds… [it] can be subjected to a notice of garnishment…  Additional Notes Interests of the principals are conflicting Clear guidelines for the releases of the escrow deposit; emphasis on ministerial function Joint authorization for release = not always effective Remedy in case one principal refuses to give authorization for release = interpleader case Interpleader case = filed by the Escrow Agent to compel the conflicting principals to settle differences in court  Whenever conflicting claims upon the same subject matter are or may be made against a person who claims no interest whatever in the subject matter, or an interest which Complaint for in whole or in part is not disputed by Interpleader the claimants, he may bring an action against the conflicting claimants to compel them to interplead and litigate their several claims among themselves (Rules of Court)  The action of interpleader … is a remedy whereby a person who has personal property in his possession, or an (Alvarez vs. obligation to render wholly or partially, Commonwealth of the without claiming any right in both, comes Philippines, to court and asks that the persons who G.R. No. L- claim the said personal property or who 45315, Feb. 25, consider themselves entitled to demand 1938) compliance with the obligation, be required to litigate among themselves, in order to determine finally who is entitled to one or the other thing.  The remedy is afforded not to protect a person against a double liability but to (Alvarez vs. protect him against a double vexation in Commonwealth of the respect of one liability…. When the court Philippines, orders that the claimants litigate among G.R. No. L- themselves, there arises in reality a new 45315, Feb. 25, action and the former are styled 1938) interpleaders, and in such a case the pleading which initiates the action is called a complaint of interpleader…  Additional Notes Escrow involving funds with authority to invest – General rule: cannot be invested Exception: allowed by the principals; deposits and government securities; consistent with the expected release Depositary Relationships Corporate Depositary Protective committees Voting trustees  Protective Committees A group appointed by court to handle and decide on the management of a corporation that is undergoing reorganization, receivership / rehabilitation, or when there is a intra-corporate dispute Aims to protect the investors Ensures transparency of transactions  Voting Trust - Also known as business trust or Massachusetts trust - Concept originated from England but later adopted in Massachusetts (US) when the latter inherited the English Law. - In Massachusetts, it was popularly employed as a substitute for the incorporation of businesses dealing in the development of real estate. - Hence, the business trust later came to be known as the Massachusetts trust. [Warren, Edward Henry. “Corporate Advantages Without Incorporation” (1929). Cited in Tennessee Law Review, vol. 31, pp. 471]  Voting Trust Sec. 58 of the Revised Corporation Code Purpose: to confer to the trustee the right to vote in meetings and other rights pertaining to the share Notarized voting trust agreement Term: not more than 5 years, may be renewed  Voting Trust Copy filed with the SEC for enforceability Recorded in the books of the corporation Cancellation of trustor’s certificate of stock and a new one issued in the trustee’s name Upon expiration of term, all rights are automatically cancelled including the trustees’ certificate and new certificate of stock is reissued to the transferor  Voting Trust Proxy Allows another person to exercise voting right Period not exceeding 5 Particular meeting years New certificates issued in No new certificates the name of trustee Voting trust agreement Proxy form Irrevocable Revocable Onerous Gratuitous Trust arrangement Agency arrangement  Duties of Voting Trustees Receive the shares of stock Issue voting trust certificates Hold the stock in safekeeping Receive dividends Distribute dividends On termination, deliver the stocks on surrender of the outstanding voting trust certificates  Obligations of the Depositary Safekeep the thing Return the thing with all its accessions and accessories Return in same condition, except for wear and tear Return without delay Not to delegate to another the safekeeping Responsible for the negligence of its employees Not to change the way of the deposit; to notify depositor first and wait for decision unless delay would cause danger  Obligations of the Depositary Not to commingle Liable for loss of the thing, except in fortuitous event Note: Per BSP regulations, the client bears all the losses except in cases of willful default, bad faith, or gross negligence on the part of the depositary To keep the secret of the deposit when the seal is broken Not to accept the thing (or return the thing being deposited) if thing has not been lawfully acquired (or possession of which has subsequently becomes unlawful)  Question X gave Y property titles for the latter’s safekeeping in his vault in Building A. After 2 years, structural defects in Building A were discovered, needing major renovation. Y thought of transferring the safekeeping of the titles to another building, Building B. What is his duty to X as the depositary?  Answer Apply the rule - not to change the way of the deposit; to notify depositor first, and wait for decision unless delay would cause danger or damage to the property being safekept  Follow-up Question Y tried to contact X, but the latter’s whereabouts is unknown. What should Y do?  Answer Notify the client before the transfer. If no reply despite several notices, transfer in another secured place. Notify client of the new location Document all communications.  Question X asked you to keep his title to his hacienda. Subsequently, Y, the previous owner, came to you and asked for the title, saying that X acquired title to the property through fraud. What will you do?  Answer Notify X, the depositor File interpleader case against X and Y Consign/surrender the thing with the court  Other Obligations of the Depositary on Acceptance of the Thing under the Civil Code Acceptance of thing in a closed/sealed container Presumption on the value of the thing deposited Depositor need not prove ownership Not applicable to TE due to AMLA rules  Additional Notes Depositary should conduct KYC procedures / observe AMLA regulations Source of funds Legitimate business or justification Purpose of the account Not fruits of any crime or illegal sources  Additional Notes Do not accept anything that is already sealed ✓ Contraband; value; preservation Account everything Acknowledgment, including value ✓ Assumption of risk; restitution Joint sealing, if applicable Notify client if container needs replacement  Obligations of Depositary Place of return: place agreed upon If no place has been stipulated: ✓Where the thing deposited may be. ✓If moved with malice, then the place where the deposit was constituted.  Obligations of the Depositary Return of the thing deposited: anytime on demand, except: (1) when the thing is judicially attached - ✓Court order (attachment/garnishment) ✓Indirect contempt, punishable by fine and imprisonment ✓Notify depositor  Obligations of the Depositary Return of the thing deposited: anytime on demand, except: (2) when the depositary is notified of the opposition of a third person to the return of the thing ✓Notify depositor ✓File interpleader case  Obligations of the Depositary Return of the thing deposited: anytime on demand, except: (3) when the depositor has not paid necessary expenses and fees for services ✓Demand payment ✓Sell thing deposited ✓Return the balance, if any  Trust Fees A bank acting as trustee, fiduciary, or investment manager shall be entitled to reasonable fees and commissions which shall be determined on the basis of the cost of the services rendered and the responsibilities assumed. (BSP MORB)  Other Obligations of the Depositary Not to return the thing deposited when the depositary discovers that the thing has been stolen and who its true owner; depositary must notify and give true owner 1 month to claim Not applicable to TE: - Breach of confidentiality - Determination of ownership is not a ministerial function; within court’s authority  Other Obligations of the Depositary Not to return the thing deposited when the depositary discovers that the thing has been stolen and who its true owner ✓To avoid: KYC procedures ✓If it happens: ✓Depositary duty-bound to honor agreement ✓If another person claims ownership legally, notify depositor; surrender custody to the court  Obligations of the Depositor Pay fees in accordance with the agreement Bear the loss (if any), except upon willful default, bad faith, or gross negligence on the part of the depositary Termination Delivery Loss of the thing