S1L4 – The Failure of Diligence of PNB over BENECO’s Money
This is for my law students preparing for the Bar. This is on Banking Laws and Procedures (Debit Transactions):
QUESTION: Can BENECO recover the one million pesos withdrawn from its account by strangers?
Yes.
It will take some doing, of course, because law-abiding citizens who uphold the rule of law do not take matters into their own hands They take it to court where there are no guarantees Every time you go to court, there is always the risk of winning.
Was that withdrawal made by NEA? No, it seems it wasn’t. The persons who received the ONE MILLION PESOS claimed to represent BENECO, not NEA.
But weren’t those persons appointed by NEA? Not all of them, just one—the one who claims she is the general manager of BENECO. There were four others who are all directors expelled from the board by a unanimous vote in the Annual General Membership Assembly (AGMA).
So what was the basis used by the bank to approve the withdrawal?
I don’t know.
Because of bank secrecy laws—which we observe but NEA and the bank itself didn’t—we don’t know all the details of the transaction. But we know enough about banking procedures to say it’s really very rare for cash withdrawals to be made directly from a company account. It’s even rarer for any bank to release that much money to a mere messenger, no matter his rank. For an amount like that—ONE MILLION PESOS—usually it’s even the bank that delivers the cash to the company’s office.
Over-the-counter cash withdrawal from a company account is rare because the withdrawal slip has to be signed by the payee who must be authorized to sign for the owner of the drawee account. In company accounts, two or three signatories are required—sometimes even as many as five (the most I have seen, because it was an “A-and-B-and-C-and-D-and-E” joint account). There’s just not enough space for that many signatures in a typical bank withdrawal slip.
So to siphon off P1-million from an account without filling up a withdrawal slip, you need a signed check drawn from that account. Obviously, you have to steal one of those checks from the account owner, if you are not him.
Then the check can either be deposited in the payee’s account (ooooh…very traceable!) or encashed by the payee on-the-spot. If what was used was a stolen BENECO check, it should not be readily encashable because most company checks are “crossed checks”—for deposit only.
But some banks allow crossed checks to be encashed on “preferred client” courtesy but it must still go though “clearing.”
That’s when the bank verifies two things (1) is there enough money in the account to cover the check amount, (2) was the check signed by the authorized signatories.
If it was NOT signed by the authorized signatories, the bank should dishonor the check, i.e. disallow its encashment—not allow a withdrawal, in other words.
Suppose the payee himself says, “iba na ang mga signatories, kami na.” That’s a red flag, and the bank manager should consult the bank lawyer.
What will the bank lawyer do? He examines if the claim is tenable. To change the signatories, there must be a board resolution. But the resolution ITSELF must be valid, meaning it was approved by the board having met with quorum.
In the case of BENECO, quorum is SEVEN out of its eleven directors. If the resolution changing the signatories was signed by only FOUR directors, that’s a second red flag.
But how can the bank know what is the valid quorum in BENECO?
It should look at the record. When you open a corporate account, the bank makes you submit copies of (1) your Articles of Incorporation, (2) your by-laws, (3) your board resolutions naming the authorized signatories, and (4) the signature specimens of those persons. The by-laws contain a provision saying what constitutes quorum for that corporation’s board actions.
So no matter how much “shock and awe” a stranger uses to demand a withdrawal, the bank should not panic. And it cannot feign ignorance. It holds the record. It possesses ALL the information it needs to be able to evaluate a dodgy claim.
Sometimes, a court may make it easier and simpler for a bank to make that judgment call on whether to allow or disallow a withdrawal. If faced with a court order, the bank can just follow the order without asking any more questions or doing any more investigations.
What if the bank is not aware of the ongoing controversy between NEA and BENECO? It doesn’t have to be. Like I said, it has been holding the record right from Day One when the account was first opened—long before any controversy.
But didn’t the bank write to BENECO, or didn’t they call BENECO to let them know? Apparently, it did but if notice is given “a posteriori” (that’s Latin for “after the fact”) it makes no difference even if they wrote to Santa Claus or called the Avon lady—it was all moot and academic the moment that lucky fellow (or felon) walked out of the bank with his clutch bag bulging with ONE MILLION PESOS.
If you were the bank lawyer, what would you recommend?
I would recommend crediting back ONE MILLION PESOS to the BENECO account immediately, writing a profuse letter of apology to BENECO (the genuine one) and filing a police report for ROBBERY naming the persons who actually received the money, or made the representation to cause the money to be released.
Robbery? Yes, robbery, as in “unlawful taking of money, using threats or intimidation against persons.”
Otherwise, I would just tell my client candidly to just swallow hard, dig in deep with its heels and dreadfully wait for the day of reckoning, “God forbid, pag nagdemanda ang BENECO, wala tayong depensa.”
Class dismissed.
The author is a writer and lawyer based in Baguio City, Philippines. Former editor of the Gold Ore and Baguio City Digest, professor of journalism, political science and law at Baguio Colleges Foundation (BCF). He is a photographer and video documentarist. He has a YouTube channel called “Parables and Reason”