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 managers checks in payment for their investments. A total of Php 9.23 billion worth of managers checks were issued in the period of April 17 to April 25 alone and many investors walked away thinking that the managers checks in their pockets were as good as cash.
However, on 26th of April, 2000, the day after Urban Banks board voluntarily declared its bank holiday, those who had managers 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 managers checks was as real as the emperors new clothes. Obviously, they were not as smart as those who had the good fortune of getting their managers 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 Banks 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 managers 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 managers 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 managers 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 managers 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 managers 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 managers 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 managers 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 managers 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 managers 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 managers check at the request of the valued client that had it issued in the first place on the latters 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?
By that time, Bartolome already know much more managers 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 Urbans 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 Banks 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 managers 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 managers 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 Banks 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.