S1L52 – Is it still safe to do banking in Baguio?
Some banks have completely lost their bearing and have forgotten many fundamental elements of the contract between them and their depositors.
What are some of these basics?
To start off, a contract is the PRINCIPAL LAW between the parties. The only persons who can participate in a contract are the parties and their heirs, assignees and successors-in-interest.
A contract is rigid, meaning it is not meant to be malleable that either party can unilaterally alter or modify it to accommodate changes in their legal environment. There are procedures that allow modifying a contract (novation), or even terminating it (rescission). If you are not resorting to either one, but still you’re doing something—ANYTHING—other than what the contract originally contemplates, you can be sure you’re doing something wrong.
A contract is a meeting of the minds between the parties, who must then act at all times in good faith according to what they originally agreed upon. The reason parties formally sign a contract is because they are not supposed to continually renegotiate the terms—they do that only once before signing the contract. Once signed, a contract is carved in granite. No contract is meant to be altered so easy, otherwise what’s the whole point of having a contract?
Third parties (those NOT signatories to the contract) have no standing to affect a contract in any way. They are not privy to it. That’s not to say that a third party might not try. If that third party is private, it’s called interference. If that third party is the government, it’s called impairment.
Only ignorant people think that government is so powerful it can do anything, including impair a contract. This often happens when a government regulatory agency throws its weight around. Fakely using the “majesty of the law” (or sometimes they like to use the phrase “rule of law” even though they have no clue what it means) it can intimidate ordinary citizens who are weaned on the legendary saying “you can’t fight City Hall.”
Of course I don’t mean that literally, it’s just an expression. “City Hall” is an alliteration that represents any office, agency or instrumentality of the local or even national government. This is to say that when big government bureaucrats wearing their authority on their sleeves come around, they can often bully their way into, for example, making a bank forget not only banking laws but all of civil law.
Imagine this. Suppose Pedro owes me money and I told him to deposit the money in my bank account, which he did. The next day (for whatever reason) Pedro returns to the bank, tells the manager “there’s been a mistake, I shouldn’t have deposited that money in Joel’s bank account, I want my money back.” If you were the bank manager, what would you do?
Because the facts and the situation are so simple, you might answer easily, “Of course, I will not give the money back to Pedro. Whatever his reason be, that’s not my problem. My duty is to honor my contract with Joel, my depositor. I have no contract to honor with Pedro.”
You would be correct. As a bank, your duty is just to hold the money. It’s not your duty to investigate the circumstances about the money. It is not your duty to adjudicate (to exercise judgment) to which person the money should “rightfully” go.
In the example I gave, let’s assume Pedro is right—he didn’t owe me any money after all. The deposit was a mistake. Will that change the position of the bank manager?
No, it will not.
Even if there was a mistake, the mistake is not the bank’s. The bank has no duty to correct Pedro’s mistake.
You might ask, cannot the bank interview Pedro, be convinced of his basis for wanting the money back—maybe he’s got a receipt to prove that he had actually paid what he owed me already. So what’s wrong with the bank making the “correction” giving the money back to Pedro and then attaching a copy of that receipt to the record?
In other words, cannot the bank be more “proactive” so long as it can justify its action with credible evidence (the receipt)?
The answer is NO.
If the bank did that, it would have violated its contract with me. Worse, to explain why it broke the terms and conditions in our contract, the bank will now present what is called “parole evidence” (the receipt) which is any document extrinsic to the contract by which you are trying to interpret your compliance, or justify your violation of the contract.
Now let’s embellish that simple example with a few upgraded details.
Suppose you are a bank in which an electric cooperative, like the Benguet Electric Cooperative (BENECO) has an account. Then one day P58-million pesos was deposited by the National Electrification Administration (NEA) to its account. It’s BENECO’s money now. The point of reckoning is really very simple. As soon as money “crosses the threshold” from the account of NEA to the account of BENECO, that money cannot recross the threshold back the same way it came in without piercing the security wall encircling the BENECO account under the terms and conditions of its depository contract with the bank.
So that you won’t be confused by information overload, never mind where the money came from or for what purpose it was deposited. Anyway we’re not spending one centavo of it, we’re just studying its movement in the context of the law on contracts.
The “next day” NEA goes back to the bank and says there’s been a mistake, the money should not have been deposited in BENECO’s account. Can that P58-million “leave” the BENECO account, without its consent?
The answers is NO IT CANNOT.
But the reality is it did. Why? Because the bank chose to be proactive and to go beyond the terms of its contract with BENECO. It decided to adjudicate—that is, to DANGEROUSLY exercise judgment and make a determination far above its competence as a bank to make.
The bank is not the court. It is neither trained nor equipped to cut through the gordian knot of considerations about government loans and subsidies and a long litany of laws, implementing rules, executive orders—to make the decision to break fiduciary commitment with BENECO and withdraw money from its account without its consent, to give back to NEA.
Just to give you contrast, if a full-fledged court of law were to make the decision to authorize the SAME action, it would have probably taken the court a full year, if not longer to decide. So you can imagine how any court wouldn’t find it difficult to say that the bank acted with grave abuse.
If there’s one misconception in the public’s mind about the BENECO bank contoversy, it is the popular BUT WRONG idea that it was NEA that withdrew the money. NEA cannot do that. NEA is not a party to the depository contract between BENECO and the bank. Remember, ONLY PARTIES, THEIR HEIRS, ASSIGNEES AND SUCCESSORS-IN-INTEREST CAN AFFECT THE PERFORMANCE OF A CONTRACT.
NEA cannot withdraw that money, only BENECO can. So if BENECO did not cause the withdrawal, then it was caused BY THE BANK—the only other party to the contract with the ability and the opportunity to make that withdrawal. What NEA did was just to keep the money (where I have no idea) after the bank withdrew it for them. The bank did so “motu proprio” (at its own instance or determination) and if this thing goes to court, the bank has no choice but to defend its action using PAROLE EVIDENCE.
Now this body of “parole evidence” may even consist of a daunting compilation of official-looking documents: board resolutions, strongly-worded letters, terse memoranda—who cares what they are? They may be independently intimidating, but the Rules of Court, and the courts themselves, are no respecter of official gumption and bravado. In the eyes of the law, these are still PAROLE EVIDENCE and they will NOT excuse the substantial breach of a fiduciary contract between a bank and a depositor, especially so that this is one contract deeply impressed with public interest.
Sectorally, the concern is, how many banks in Baguio think and act in this manner?
I said “sectorally” because Baguio is considered the Switzerland of the business community around these parts. Business and industry chambers not just in Baguio City but throughout Northern Luzon prefer to do their banking in Baguio City.
Incidents of a bank acting so recklessly and with such utter lack of diligence shake the confidence of the business community, making them wonder, is it still safe to do banking in Baguio City? Or are other emerging banking capitals like Dagupan City in Pangasinan or Tarlac City in Tarlac more trustworthy and reliable now than overrated Baguio City?
The lack of sectoral response in Baguio is unnerving many business people. In the end, Baguio banks may have only themselves to blame if the crisis of confidence eventually spills over to their books and starts degrading their own bottomline.
About the Author
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”
About Images: Some of the images used in the articles are from the posts in Atty. Joel Rodriguez Dizon’s Facebook account, and/or Facebook groups and pages he manages or/and member of.