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Some Were Smarter and Luckier Than Others
(Article published in the
Feb. 26, 2001 issue of TODAY, Business Section)

When word got around that depositors and investors of Urban Bank and Urbancorp Investment, Inc. were frantically preterminating their placements in March and April of 2000, the anxieties of not a few nervous clients were allayed when Urban Bank issued them manager’s checks in payment for their investments. A total of Php 9.23 billion worth of manager’s checks were issued in the period of April 17 to April 25 alone and many investors walked away thinking that the manager’s checks in their pockets were as good as cash.

However, on 26th of April, 2000, the day after Urban Bank’s board voluntarily declared its bank holiday, those who had manager’s checks, in the total amount, according to the report of Interim Receiver, of almost Php 1.3 billion, painfully realized that the security that cloaked their manager’s checks was as real as the emperor’s new clothes. Obviously, they were not as smart as those who had the good fortune of getting their manager’s checks and of depositing them with their respective banks before Urban Bank ran out of money.

Among the smart ones, for the information of those who profess to be the champions of Urban Bank’s depositors, were, according to documents filed in court, relatives of Urban Bank Chairman Arsenio M. Bartolome III. As early as April 19, at least thirteen manager’s checks were issued to them. Also smart were the family and relatives of Urban Bank President Teodoro C. Borlongan. To them were issued in the period between April 15 to April 25, 2000 manager’s checks totaling over Php 100 million.

A not so smart depositor seems to be the owner of Account No. 858 and his or her relations. Records show that two manager’s checks, both payable to cash, were issued to this owner on April 24. One was promptly deposited and was cleared in due course. The other was not even deposited and therefore joined Urbancorp Investments, Inc.’s list of outstanding manager’s checks as of April 25.

Just as lacking in savvy was apparently the son of the onwer of Account No. 858. This son was issued on April 24 a manager’s check, payable to cash, amounting to over Php 5 Million, and another, on April 25, amounting to over Php 38 million. Both checks are still outstanding and remain unpaid to date.

Other than a better grasp of the then already precarious position of Urban Bank, what did the smart ones know that the not so smart ones did not? Simply, that while a manager’s check is ordinarily perceived even by the Supreme Court, as being as good as cash, it is still subject to "clearing," as clearly explained by banking law authority, Atty. Antonio Viray in his book Checks.

For you and I, that means that the manager’s check issued to us, although issued by and is supported by the credit and reputation of the issuing bank, will not always be accepted at face value by the bank where we deposit it. Just like the checks you and I issue, a manager’s check is presented by the receiving bank, at the end of banking hours, to the issuing bank, and only when the issuing bank agrees, expressly or impliedly, to honor it and only after the receiving notice that bank has credited our account, is the manager’s check as good as cash.

But if a bank issues its own check, why would it not honor it? Many reasons, it seems. Sometimes, according to Atty. Viray, a bank puts out a stop payment on its own manager’s check at the request of the valued client that had it issued in the first place on the latter’s claims that the goods purchased with that check were defective or were not delivered. The more obvious one is, of course, the issuing bank has no money with which to honor the check. In such a case, what happens then?










         

 
Not too many people know the answer. Not even Urban Bank Chairman on April 25. Late afternoon of that day, after he had met with BSP officials to tell them of the Bank’s decision to declare a holiday, he had to ask Ms. Tessie Hatta, BSP’s Accounting, "What are we to do? This is my first time?"

By that time, Bartolome already know much more manager’s checks had been issued, than what Urban Bank could honor. Ms. Tessie Hatta, who had seen several bank closures before, told him that she, in the light of Urban’s self-declared holiday, would have, according to regulations, to tell the Clearing House that the BSP would not accept checks in excess of what can be accomodated by Urban Bank’s demand deposit account with the BSP.

Since not all incoming checks estimated at Php 2 Billion could be accommodated by the almost depleted account of Urban Bank a duly authorized bank representative had to go to the clearing house to choose the lucky ones that would be allowed to go through. If that is not done by 8:00 a.m. the following day, all the incoming checks would have to be returned by the clearing house.

As of the evening of April 25, it was apparent that Urban Bank could clear only up to Php25 Million. Thus, Mr. Bartolome following standard procedure, went to the clearing house early morning of April 26 to select the lucky manager’s checks that would be allowed to clear. He choose five and left the rest to be returned to receiving banks. Of the lucky five, one belonged to his relative. Bartolome could not have gone to choose the manager’s check owned by Account No. 858, for two reasons: first, he knew, or should have known, that the face value, of the check exceeded the amount in Urban Bank’s account was available; and second, the check, at any rate, was not presented at all for clearing on the 25th of April. It may be hanging on a picture frame somewhere in San Juan.
 

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