Contract Law

Deposit Contracts Peculiarities of Termination in the Light of the Current Financial Depression
he most striking and frequently discussed question of the past month (October, 2008) is INTEGRITES the Resolution of the National Bank of Ukraine No.319 of 11 October 2008 (with amendments as of 16 October). Another way of improving the liquidity of banks is to forbid the early withdrawal of deposits. So what exactly does the Resolution establish in this regard? According to Article 2.4 the following additional measure is set up in the area of conducting of active-passive operations: to execute banks obligations under all types of contracts in any kind of currency attracted only on condition that the term for execution of obligations has come regardless of the category of the counterpart. As a result of such a small article a huge wave of panic swept the Ukrainian people and was duly confirmed by numerous refusals to return bank deposits ahead of time. Apart from the economic and moral aspects of what has happened, there is a need for a legal overview of the problem to provide legal analysis of a situation according to the provisions of current contract law in Ukraine. Paragraph 3 of section 71 of the Civil Code of Ukraine is dedicated to Bank deposits. Namely, part 2 of Article 1060 states that according to the bank deposit contract of (regardless of its type), a bank is obliged to return the deposit partially or in its full amount at the first request of the depositor, with the exception of deposits made by legal entities on other terms of return, which are determined in a contract. It is very important to stress that the same article establishes: the clause of the contract on refusal from the right to receive the deposit back at the first request is considered as worthless (i.e. its invalidity is not doubted and does not have to be acknowledged by court). Provisions of the contract on a bank account are applicable to relations between the bank and depositor under the account on which the deposit is allocated (part 2 of the Article 1058 of the Civil Code). This means: the contract can be terminated prematurely according to a request made at any time by the customer (Article 1075); restriction of a clients right to dispose of money funds allocated on his account, is forbidden, except for cases when such right is restricted according to a court ruling in cases establishd by law (Article 1074); in the event that a bank breaks a clients order on the transfer of money from his account (including deposit account), the bank is obliged to conduct an ordered transaction, to pay interest and to reimburse caused losses immediately after discovery of such a violation (Article 1073). Analysis of the mentioned clauses of current legislation brings one to a conclusion of illegality of the NBU Resolution. However, the reality is that banks will execute the Resolution. In order to change this situation it is necessary to acknowledge the Resolution as illegal in a court order. According to Art.19 of the Administrative Le-

By Ganna TYSHCHENKO

Ganna Tyshchenko is the Head of the Litigation Division at INTEGRITES. Ms. Tyshchenko has a Master degree in Business Law. She has over four years of successful specialization in litigation, both in Ukrainian courts and international arbitration. Ms. Tyshchenko practices litigation, labor and corporate law, amongst others. She is fluent in English, Ukrainian and Russian.

gal Proceedings Code, a dispute regarding the legitimacy of the NBUs Acts (including Resolution) is to be solved by a district administrative court, whose territorial jurisdiction covers the city of Kiev. And here is the problem. By Presidential Decree of 16 October 2008 No. 941/2008, the District Administrative Court of Kiev city was liquidated and replaced by two new courts: Central District Administrative Court of Kiev; Livoberezhniy District Administrative Court of Kiev. The decree has been valid since 16 October 2008, which means now it is actually impossible to contest the Resolution of the NBU, as a legally proper court was liquidated and no new courts have been created yet. This means there is a need for depositors who concluded long-term bank deposit contracts and now want to terminate them pre-term to look for other ways to do this. The analysis of legislation above on the subject gives the opportunity for depositors to apply to court in order to defend their rights. It will take some time, of course, but having prepared carefully for a hearing, a depositor will definitely win. Similar practice from 2004 confirms this (Regulation of NBU No.576 of 30 November 2004 created similar problems for depositors of Ukrainian banks). In this case it is necessary for the depositor to demand official rejection from a bank. Or, at least, to file a proper written application to a bank with a request on pre-term return of deposit. If bank employees refuse to accept the application it is necessary to obtain evidence that such an application was made and when it was made (which in legal practice means a special stamp with inner number and signature of the bank employee confirming the fact that such application was actually filed). If a depositor fails to obtain a copy of his application with the mentioned marks, he should send his application via mail (registered letter with confirmation of delivery or as a valuable letter with description of documents sent). Having such documents will help to prove the illegallity of a banks actions. However, there are other important issues which must be taken into account. Thus, it is necessary to check whether any other substantial violations were made (during the signing of deposit contracts). Here is a list of the most frequent violations: Absence of seals in the deposit contract; Absence of contract number and important dates (date of contract signing, receipt and return of the deposit); Absence of signature of banks duly authorized person;

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Term of return of deposit and paymernt of interest is not defined; Absence of sum of interest in the event of pre-term return of deposit or in the event that the bank delays the return of money to the depositor; Noncompliance of contract amount to actually received deposit; Change in the interest rate in an unilateral way in the event of such a possibility not being envisaged by the contract. The mentioned problems are rather serious and in each particular case can have an effect on the result of the hearing. It is also necessary for this common question to be asked whether the deposit contract was signed by an authorized person or not. Properly authorized means there must be a copy of the Power of Attorney given to the person by the bank. Or, at least, reference to the POA number and the date stated in the deposit contract. It is very important, as usual, in accordance with a bank Statutes, the right of signature without POA belongs only to the Head of the Bank. And taking into account increased employee turnover in some banks delays in the signing of such POAs can happen frequently. This means it is sometimes possible that the employee who signed the deposit contract wasnt properly authorized to do this. In unison this can lead to the contract being acknowledged as invalid (if a bank makes the proper counterclaim). It will not affect the banks obligation to return the deposit (according to Article 216 of Civil Code of Ukraine). However, the depositor will not receive interest. The ultimate method of return of deposits was described above. However, in reality it isnt always necessary to start a legal action and involve expenses, lost time and worry. Sometimes merely the active stance of the depositor will be sufficient. A person who is fully aware of his or her rights and their violations and who demands explanations from the heads of a banks departments, written explanations from operative employees, etc., can in many cases expect that a bank will prefer to avoid any legal actions and additional loses and satisfy his/her legitimate demands.

By way of conclusion it is worth adding that, according to recent reports from the National Bank of Ukraine, current situation with Ukrainian bank liquidity has improved substantially and panic among depositors has fallen. Before undertaking any actions and efforts directed at ensuring the pre-term termination of the deposit contract, each depositor has to evaluate the real necessity of receiving the deposit back earlier and losing the interest for which he deposited his money with the bank (such a clause is included providently in the majority of deposit contracts by a banks legal advisers).

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Contract Law

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