Dear Sir:
We write you on behalf of our clients, Imear Navelgas, Vita and Michael Kalashian, owners of the following accounts which were opened and maintained at your Baguio-Magsaysay Branch in Baguio City:
ACCOUNT NO. ACCOUNT NAME AUTHORIZED SIGNATORIES
3-003-37142-6 King Mike Security Agency Michael Kalashian AND
(KMSA) Vita Kalashian
7-003-50320-4 King Mike Security Agency Rocky Fernandez OR Gerald Batanes
(KMSA) AND
Larry Supnet OR Joe Mendoza OR
Minnie Navelgas
(two signatures are required: One
signature each from group 1 and group 2)
3-003-50170-2 Kalashian Foundation Michael Kalashian AND
Vita Kalashian
3-003-52995-0 King Mike Security Agency Rocky Fernandez OR Brendalyn de
Guzman OR Rolando Paraan
3-003-41330-7 Brendalyn de Guzman or Rocky
Fernandez or Larry Supnet or
Gerald Batanes
3-003-55312-5 King Mike Security Agency (KMSA) signatories unknown
With respect to the above-stated accounts, we cite the following deviations from and violations not only of your standard banking procedures but likewise of banking and other pertinent laws to the extreme prejudice of our clients:
1. Unauthorized opening of accounts for KMSA
2. opening of payroll accounts with four signatories
3. a. payroll requests unsigned by authorized signatories but given due course
b. payroll request given due course even without amount being specified
c. payroll transmittal list not countersigned by authorized signatories but given
due course
d. alterations on payroll list not countersigned but given due course
4. encashment of checks payable to government agencies and other juridical entities without authority
5. encashment of checks without indorsement of nor authorization from payee
6. honoring checks even without the signatures of the authorized signatories
7. honoring signature of people unauthorized to sign checks
8. honoring signature of signatory with revoked authority to sign checks
9. honoring signature of signatory without face to face contact nor confirmation or authority from principals
10. transfer of funds without authority
1. OPENING OF ACCOUNTS UNDER THE NAME OF AGENCY WITHOUT AUTHORITY FROM THE PRINCIPALS
Account nos. 3-003-52995-0 and 3-003-55312-5 were opened on separate dates both under the account names “KING MIKE SECURITY AGENCY” (KMSA) without the knowledge and consent of our clients. The unauthorized opening of said accounts enabled some ill-motivated employees of the agency to deposit checks and other deposits payable to KMSA to the unauthorized accounts in several instances amounting to PHP 63,180.00 [1] (see ANNEXES 1-2) and also to spuriously transfer funds from the legitimate accounts to the unauthorized accounts for their personal gain amounting to PHP 471,221.09 [2]. The said accounts were discovered only after a Banco de Oro check payable to KMSA was deposited to the unauthorized account and subsequently returned due to insufficient funds.
Based on standard banking procedures, accounts for and under a trade name should only be opened upon a formal request from the principal officers or Board of Directors if the entity involved is a corporation or from the owners, if a sole proprietorship. In this case however, KMSA which is a sole proprietorship never requested nor authorized the opening of said accounts. Neither were the principals from whom the sole authority to open accounts for KMSA emanate ever informed about such accounts. Had your bank taken even the minimum effort to inquire about the propriety of the opening of such account or informed our clients about said account, losses due to fraudulent machinations amounting to PHP 534,401.09 [3] would have been prevented at the onset.
2. OPENING OF JOINT PAYROLL ACCOUNT
Account no. 3-003-41330-7 under the names of Brendalyn de Guzman, Rocky Fernandez, Larry Supnet or Gerald Batanes, all employees of KMSA, was opened purportedly as a payroll account as the said account was included in the monthly payroll list submitted to your bank for which funds transfers from KMSA checking account no. 7-003-50320-4 were made in several instances with amounts ranging from PHP 11,000.00 more or less to PHP 477,000.00 . (Please see ANNEX 3 for the schedule of the transfers). Such transfers were all unauthorized and unknown to Mr. Navelgas and the Kalashians and they were not obviously for payroll purposes. However, despite the obvious questionability of the transfers which should have aroused the curiosity of your bank for it to conduct an inquiry as to such transfers or at the very least, inquired from or informed our clients about said transfers at the very start or required that such transfers be covered in a separate request apart from the payroll request, these anomalous transactions would have been discouraged and stopped outright thus preventing the loss of millions of Pesos. Unfortunately, your bank chose to turn a blind eye and remained complacent while clearly reneging on your bank’s duty to safeguard the funds of our clients with the highest degree of diligence which resulted to unauthorized transfers resulting to losses due to fraud to the detriment of our clients amounting to PHP 2,559,981.21 [4].
3. a. payroll transfer requests unsigned by authorized signatories to the
account but given due course
b. payroll transfer request given due course even without amount being specified
c. payroll list given due course even without the countersignatures of the signatories on each and every page or the list or at least at the end of the list making it easy to replace the authentic list with a fictitious one after the covering letter-request to transfer had been signed by the signatories
d. alterations on payroll list not countersigned by signatories but given due course
For convenience’s sake, payroll accounts for the employees of the agency were opened where their salaries were to be credited after funds from savings account no. 3-003-37142-6 [5] have been transferred to KMSA current account no. 7-003-50320-4 [6]which should have been through the issuance of a check debited for final credit to the individual payroll accounts on the list. However, for prudence sake and for good measure, it is customary for banks to require that the aggregate amount to be transferred must be specified in the covering letter signed by the principals accompanying the payroll list for cross-checking against the sum of the latter. Moreover, it is likewise customary for banks with automatic payroll transfer arrangements to require that the request for transfer accompanying the payroll list be countersigned by the required authorized signatories to the account to ensure that both have not been tampered with. Alterations if any, are also required to be countersigned.
However, in the case of our clients, it was observed in the photocopies of request for transfers and payroll lists provided by your bank to our clients, none of the above-mentioned security measures were observed in many instances thus making it easy to tamper with such documents without being detected to suit the fraudulent machinations of those with sinister motives, as it is in the case before us, thereby resulting to irregular, if not, illegal transfers amounting to PHP 5,631,904.17. (Please see ANNEX 4 to 4-21) which could not have prospered had your bank only exercised the least amount of prudence.
4. ENCASHMENT OF CHECKS PAYABLE TO GOVERNMENT AGENCIES AND OTHER JURIDICAL ENTITIES
It was noted in several instances that checks payable to government agencies (e.g. Social Security System or cash; Bureau of Internal Revenue or cash; Baguio General Hospital or cash) were allowed encashment by your bank. Although it is true that under the Negotiable Instruments Law, checks payable to two or more payees in the alternative are deemed bearer instruments, it is also true that under administrative circulars issued by BIR and SSS among others that checks payable to such government agencies or other juridical entities must be deposited directly to the accounts of said agencies and must never be allowed encashment. On the other hand, encashment of checks payable to corporate entities or to a trade name would require at least a special power of attorney from the owners or the Board of Directors as the case may be along with other documents proving ownership of the business among other requirements. As you may very well know, the primary purpose of such circulars and banking practice is to prevent intercalations and deviation of funds payable to such entities. As such, it became standard practice for banks not to allow encashment of such checks. Or, if the person encashing such checks insists on encashing the same, it is prudent for banks to ask that the payee be changed by the maker of the check and countersigned by ALL the required signatories or to ask that the check be replaced entirely, putting the name of the person encashing the check alone as payee or be made payable to “cash”.
However, as mentioned earlier, your bank allowed the encashment of such checks despite such circulars and standard banking procedures again to the great prejudice of our clients. (Please see ANNEX 5 for photocopies of said checks that were encashed).
In our meeting last 30 May 2007 with your Baguio- Magsaysay branch officers, they reasoned that they allowed the encashment simply because some collecting banks accepting SSS and BIR payments do not accept checks not drawn from their bank. They added that they likewise allowed the encashment because the person encashing was one of the signatories to the checking account. We find said reasons unacceptable, not only because they are gross deviations from standard banking procedures but also because such move did not afford adequate protection measures for our clients to guard against unauthorized intercalations and likewise, the person who encashed the said checks was not an authorized signatory to the checking account [7].
This gross negligence of your bank thus paved the way for our clients to incur unpaid SSS premiums among others due to the deviation of funds amounting to PHP 344,423.00 for which they were fined by the SSS PHP 987,501.69 [8] (ANNEX 6 to 6-1) and ordered to pay the said amounts under penalty of imprisonment.
Said fines and penalties could have been avoided had your bank observed the simple and prudent practice not to allow such encashments.
5. ENCASHMENT OF CHECKS WITHOUT INDORSEMENT OF PAYEE
Similar to the instances cited above, it was also observed that checks payable to “individuals or cash” e.g. “Juan dela Cruz or cash” were allowed encashment by your bank by a person different from that named as payee in the instrument without even requiring that the check be indorsed by the individual payee named therein. Although we submit that such instruments are deemed bearer instruments under the Negotiable Instruments Law, still, extra-ordinary diligence required of banks necessitates that such checks be treated as payable to order of the payee named therein or at the very least, that the check be indorsed by the said payee or that the proper corrections be made on the instrument itself countersigned by all the required signatories or at least an authorization to encash the check signed by the payee himself if not, the replacement of the check itself may be required.
But again, despite the very simple measures that could have been undertaken by your bank to ensure the authenticity, genuineness and integrity of checks presented to your bank for encashment, still your bank chose to ignore such simple precautions thus resulting to the loss and further prejudice of our clients in the amount of PHP______________ (ANNEX 7).
6. HONORING CHECKS WITHOUT THE SIGNATURES OF TWO (2) AUTHORIZED SIGNATORIES AS REQUIRED AND AUTHORIZED BY THE PRINCIPALS
Current account no. 7-003-50320-4 was opened upon the instruction of our clients purposely to meet the day-to-day financial requirements of the agency (KMSA) even during the absence of our clients. As a control measure to safeguard the funds of our clients, two signatories were required to sign all check issuances, to wit:
Brendalyn Velasquez OR Gerald Batanes
AND
Larry Supnet OR Minnie Navelgas
This authority was later on revoked and changed thru a fax message sent by our clients to your bank on 20 March 2000, a copy of which was provided by your bank to our clients upon the latters’ request (ANNEX 8) to the following effect:
“Change from: Brendalyn Velasquez OR Gerald Batanes
AND
Larry Supnet OR Minnie Navelgas
Change to :
Group 1: Rocky Fernandez OR Gerald Batanes
AND
Group 2: Larry Supnet OR Joe Mendoza OR Minnie Navelgas
Two signatures are required: One signature from Group 1 and Group 2”
We noted however that said instruction of our clients was not observed in many instances by your branch and honored checks that were signed by only one of the signatories (ANNEX 9) or signed by both signatories from Group 1 alone (ANNEX 10) contrary to explicit instructions of our clients that all checks must bear the signatures of 1 signatory from Group 1 AND one from Group 2.
Such wanton disregard of the explicit instructions and welfare of our clients which you as their depository bank are duty bound to observe and protect but which chose not to for reasons unknown, resulted to illegal disbursements and siphoning of funds amounting PHP___________________ (ANNEX 9-10) thus further compounding the damages suffered by our clients which ought to have been deterred and prevented by your bank by simply sticking to the instructions.
7. HONORING SIGNATURE OF PEOPLE UNAUTHORIZED BY PRINCIPALS TO SIGN CHECKS
Basic are the rules that all the authority of the agent emanates from his principal and that the agent cannot further delegate to another what has been delegated to him without the authority of his principal. In the matter of our clients who are the principals in this case, it behooves us no end why your bank allowed and honored the signature of one Rolando Paraan for KMSA checking account no. 7-003-50320-4 (ANNEX 11) UPON THE INSTRUCTIONS OF ONLY Rocky Fernandez and Larry Supnet (ANNEX 12) who were the mere agents of our clients, without your bank even bothering to seek confirmation or written authority from our clients. All such spuriously issued checks further added to the damage of our clients amounting to PHP________________ as such issuances were not only spurious but never redounded to the benefit of our clients who are the rightful owners of the funds.
8. HONORING SIGNATURE OF SIGNATORY WITHOUT FACE TO FACE CONTACT NOR AUTHORITY FROM THE PRINCIPALS
Corollary to the issue of unauthorized signatories, is it not incumbent upon banks to properly identify clients and establish authenticity of signatures of clients or signatories? In the case of Rolando Paraan, the replacement signatory to current account 7-003-50320-4 at the instance only of the agents of our clients, we are at a loss why his signature was honored without him being required to sign a signature card before any representative of the bank to establish his identity and the authenticity of his signature?
9. HONORING SIGNATURE OF SIGNATORY WITH REVOKED AUTHORITY TO SIGN CHECKS
10. REPLACING SIGNATORIES WITHOUT AUTHORITY OR CONFIRMATION FROM THE PRINCIPALS.
Current account no 7-003-50320-4 was opened on 15 December 1999 with one Brendalyn de Guzman as one of the original signatories. This was done with the written instruction of our clients. However, in a letter dated 20 March 2000 given to your bank by our clients thru fax while they were in the United States and a copy of which was furnished us by your bank upon our clients’ request, the authority of Ms. De Guzman was revoked by our clients for control purposes (Annex ___). Said instruction appeared to have been implemented by your bank which is as it should be. Such authority was never renewed by our clients. But despite that, it was discovered that sometime in 2002, the signing authority of Ms. De Guzman was illegally reinstated by your bank. It was likewise discovered belatedly thru a photocopy of a signature card for said account (Annex __) received by our clients from your bank sometime in February 2007 that not only was the signing authority of Ms. De Guzman illicitly reinstated but the other control measures implemented by our clients for their own protection were utterly disregarded by your bank by unilaterally giving authority to one Rolando Paraan to sign checks and that any two signatories may sign checks contrary to the clear and explicit written instructions of our clients (Annex 8) that one signatory from Set A and one from Set B shall always co-sign checks.
11. PAYMENT OF CHECKS WITH FORGED SIGNATURE
With regard to verification of signatures, we regret to inform you that your bank has been utterly remiss in its duty of verifying the authenticity of the signatures of your clients. In two instances involving account no. 3-003-50170-2 under the account name Kalashian Foundation, with our client Vita Kalashian as president, check numbers 3-0087367 and 30087366 with amounts of Php50,000.00 and Php60,000.00 respectively (Annex ____) were encashed by your bank in favor of one Brendalyn de Guzman despite not having been indorsed by the purported payee and especially despite the very evident disparity between the signatures appearing on the face of the check as maker and the genuine signature of the authorized signatory, Atty. Socrates Suayan who has executed an affidavit denying that he had ever issued such checks (Annex ___). Had your bank taken the initiative of comparing the signatures on the checks vis-à-vis the signature card, they would not have failed to notice the obvious differences in the signatures that would have aroused their curiosity and prompted them to conduct an inquiry with the only authorized signatory which could have prevented the perpetration of the fraud and succeeding ones. Obviously, no such initiative were undertaken by your bank thus resulting to the fraudulent loss of Php110,000.00 to the further detriment of our clients.
12. TRANSFER OF FUNDS WITHOUT AUTHORITY
As if the wanton negligence exhibited in shocking proportions by your bank in the treatment of the accounts of our client were not enough, leading to their extreme prejudice and damage, the mental anguish and prejudice suffered by them from your bank did not end there. For, as if rubbing salt on an open wound, our clients were completely aghast to find that funds from their savings account 3-003-37142-6 of which they were the only and joint signatories at that were being transferred to other accounts without their knowledge and consent. Consider the list on Annexes ___ and ____ where transfers ranging from Php_________ to Php _________ totaling Php ___________ were transferred upon only the request of people who are not privy to the account and who are not even signatories to the account or even without any request at all.
Our clients who are the sole and exclusive joint signatories to said account cannot even withdraw or transfer funds from said account without the consent and signature of both of them yet your bank allowed other people not privy to the account, who do not even have any personality in said account and whose names nor initials do not even appear in the said account to transfer funds from that account without your bank even bothering to confirm with our clients.
The letter-requests for transfers speak for themselves that the requested transfers were made without the consent of the owners of the account. The letters (Annex ____) state: “… Our principal WILL SEND the necessary advice TOMORROW.” Is it not perplexing to note that as part of established banking procedures for the security of both your bank and your depositors, would it not have been prudent to wait for just one day until the transfer-request signed by the authorized signatories is received by your bank before making such transfers especially if the same involves not merely miniscule sums but rather large amounts of money? Assuming without admitting that such action taken by your bank was made in good faith to accommodate clients, why did your bank not follow-up on the official letter-request when the same was not received by them on the day promised? And, despite not having received such official letter-request, still your bank, again in several instances allowed other succeeding transfers without the authority from our clients.
Not only did your bank transfer funds from one account with its own set of signatories to another account with it's owns separate and different signatories, your bank likewise transferred funds in several instances without any request or confirmation at all. (Please see Annex ____). As early as 2005, our clients have been requesting your bank, thru phone and letters for copies of requests for such spurious transfers yet to date your bank is unable to provide us any, simply because there are none. The only answer repeatedly given us by one of your officers is that such transfers form the savings account were automatic transfers done to cover checks issued from the current account. But how could there be an automatic transfer of funds between accounts, each of which has their own separate and different signatories? Why were such irregular transfers not discovered and stopped despite periodic audits done on your branches? Are such irregular transfers regular for your bank? Surely you are aware of the very basic concept that Juan cannot be made to answer for the obligations of Pedro without Juan’s consent. But again, how and why was it made possible by your bank?
Considering the aforestated facts, it is easy to see how the funds of our clients were spuriously and illegally dissipated rendering our clients unable to meet their financial obligations leading to the filing of numerous lawsuits against them for non-payment of wages, SSS premiums and tax liabilities among others. Such lawsuits further lead to the loss and non-renewal of contracts of long time clients of the agency due to the damaged reputation of the agency almost leading to its imminent collapse had it not been for the infusion of more capital obtained thru loans. These lawsuits and losses could have been easily prevented had your bank only observed your duty as a banking institution to treat the accounts of your depositors with meticulous care and the highest degree of diligence expected of you, guarding against injury attributable to negligence or bad faith. The failure of your bank to observe such duty would make you liable not only for actual damages but moral and exemplary damages as well, especially with the attendant circumstances as in the case of our clients.
We are not however unmindful of the need to protect your bank’s reputation being the premier bank in the country just as we are equally concerned about protecting the interest and reputation of our clients who are respected people and philanthropists in the United States, Baguio City and Natividad, Pangasinan. Vita Kalashian, apart from being the sister of the incumbent mayor of Natividad, Pangasinan is also the president of Kalashian Foundation which was founded primarily to help their poor townmates and provide them with decent livelihood. For these reasons, we have taken it upon ourselves to prevail upon some members of the media not to bring the plight of our clients out in the open to minimize any further damage.
Likewise, we deemed it more appropriate and expedient to hold in abeyance in the meantime the filing of any action for damages and administrative sanctions against your bank pursuant to Bangko Sentral ng Pilipinas regulations with the hope that all the money lost by our clients, which could not have happened without your bank’s indispensable cooperation or lack of diligence, would be fully restituted or we could arrive at a mutually acceptable settlement among ourselves without the necessity of filing legal suites that may only further compound the damage.
In view of the foregoing we are therefore formally demanding for an explanation and full restitution of the amount of _______________________ representing the funds lost by our clients.
We hope to hear from you within fifteen (15) days from receipt of this letter.
Very truly yours,
ATTY. LEO NEAL Y. LAZARO
Adquilen Lazaro Law Office
Suite 201 Lyman Ogilby Centrum
358 Magsaysay Ave., Baguio City
With our conformity:
___________________ ___________________ _____________________
IMEAR NAVELGAS VITA KALASHIAN MICHAEL KALASHIAN
[1] Total check deposits and other deposits excluding CM
[2] Total CM to Account Nos. 3-003-52995-0 and 3-003-55312-5
[3] Total credits to Account Nos. 3-003-52995-0 and 3-003-55312-5
[4] Credits to Account No. 3-003-41330-7
[5] Account No. 3-003-37142-6 is a joint savings account where Michael and Vita Kalashian are the only signatories.
[6] Account No. 7-003-50320-4 is a joint checking account with two (2) sets of signatories requiring one signatory from each set to jointly issue checks.
[7] Brendalyn de Guzman’s authority to sign checks was revoked by the principal per their letter dated 20 March 2000.
[8] Unpaid Contributions Penalties Applicable Period Total
Php 344,423.00 Php 434,923.37 07/00- 12/01 Php 779,346.37
552,578.32 07/03- 11/04 552,578.32
--------------------- ---------------------
Php 987,501.69 Php 1,331,924.69
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