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Wednesday, April 17, 2024

SC reminds banks of role in protecting clients’ cash

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THE Supreme Court (SC) has reminded banks their business is “impressed with public interest” and, thus, it is their duty to safeguard the money of their clients and depositors who transact with them.

In a 3-page resolution in the case of “BDO Unibank Inc. v. Mapua Institute of Technology Retirement Fund Inc.,” or MITRFI, the Court’s First Division also declared it is the obligation of banking institutions to treat their client’s account “meticulously and with the highest degree of care.”

“The diligence required of banks, therefore, is more than that of a good father of a family. The appropriate diligence required of a bank must be a high degree of diligence, if not utmost diligence,” the Court emphasized in the decision made public last December 9.

Thus, the Court affirmed the December 11, 2018, decision and the August 5, 2019, resolution issued by the Court of Appeals that held that BDO failed to exercise the degree of diligence required of it as a banking institution in handling the account of MITRFI.

It held that BDO failed to exercise the utmost diligence when it allowed the encashment of altered checks of MITRFI.

The checks, which indicated the payee as “BIR/CASH,” according to the Court, should have aroused suspicion on the part of BDO that the transactions were irregular, considering that it is highly uncommon for a corporation to make out checks payable to “CASH” for substantial amounts.

The SC said the bank should have made it a point to verify the transactions with MITRFI’s authorized signatories.

“Had it done so, it would have discovered that the checks were really intended for payment of taxes to the Bureau of Internal Revenue (BIR) by MITRFI only and were altered to include the phrase ‘CASH’.”

“In allowing the encashment of the altered checks by MITRFI’s fund manager, Proceso Palabrica III, BDO had been remiss in its duty to treat MITRFI’s account ‘meticulously and the highest degree of care,’” the Court held.

The High Tribunal pointed out during the trial of the case before the lower court that BDO’s witnesses testified that for checks in amounts of greater than P200,000, it is the company’s policy to call the authorized signatories of the check to verify and confirm the encashment of the checks. However, the trial court and the CA said that aside from the assertion of this company policy, BDO failed to prove by clear and convincing evidence that for the checks subject of this case, its bank employees indeed called up the authorized signatories of MITRFI to verify the unauthorized withdrawals.

“A bank’s disregard of its own banking policy amounts to gross negligence, which is described as ‘negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and unintentionally with conscious indifference to consequences insofar as other persons may be affected,” the Court ruled.

Just recently, BDO Unibank lost huge money due to an online banking scam where unauthorized transactions were made in some of clients’ online bank accounts. The bank assured that its clients’ losses would be reimbursed while the Bangko Sentral ng Pilipinas said it is now looking into complaints of some of the bank clients who were affected by the scam.–

Read full article on BusinessMirror

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