By Atty. Julius Gregory B. Delgado
HERMAN G. LIMBO VS. PEOPLE OF THE PHILIPPINES, G.R. NOS. 204568-83, APRIL 26, 2023:
“CHECK KITING” AS VIOLATION OF SECTION 3 (E) OF REPUBLIC ACT NO. 3019, OTHERWISE KNOWN AS
THE ANTI-GRAFT AND CORRUPT PRACTICES ACT, WHEN COMMITTED BY A GOVERNMENT-OWNED
BANKING OR FINANCIAL INSTITUTION
Petitioner Herman Limbo was accused and convicted by the Sandigabayan for violating Section 3
(e) of Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act. Limbo was a
high-ranking public officer, being an Assistant Department Manager of the Philippine National Bank
(PNB or Bank) assigned to Cagayan de Oro Branch. At that time, PNB was still owned by government.
Limbo, along with fellow officers/employees was accused of giving unwarranted benefits to so-called
“valued” clients by allowing encashment of their checks from other banks without the required clearing
or even if these checks were drawn against closed accounts or against accounts with insufficient funds.
The Supreme Court, citing the Association of Certified Fraud Examiners (ACFE) Fraud Examiners
Manual, held that “check kiting” has been described as one of the original white crimes. The Court held
that “check kiting” involves multiple bank accounts and is made possible through floating. “Floating” is
defined as “the additional value of funds generated in the process of collection and arises because the
current holder of funds has been given credit for the funds before the cheque clears the financial
institution upon it is drawn.” With more recent technology, the Court held that “check kiting” has
become more difficult to commit because of the reduced float period. In any case, unless detected, the
Court held that this scheme can continue indefinitely, covering one check written against insufficient
funds with another check. Necessarily, the effect of “check kiting” includes artificial inflation of both
fund balance and interest since the money “deposited” to an account does not in fact exist. Given the
nature of “check kiting”, its discovery requires extensive investigation process.
The Supreme Court restated the elements of violation of Section 3 (e) of RA 3019, to wit: (1)
that the accused must be a public officer discharging administrative, judicial, or official functions; (2)
that he acted with manifest partiality, evident bad faith, or inexcusable negligence; and (3) that his
action caused any undue injury to any party, including the government, or gave any private party
unwarranted benefits, advantage, or preference in the discharge of his functions.
The Supreme Court held that all elements are present as Limbo is a public officer since PNB was
still government-owned at that time. Regarding second element, the Supreme Court held that Limbo
clearly acted with clear bias in favor of these so-called “valued clients” as they enjoyed privileges which
are not otherwise allowed under BSP regulations and PNB’s policy. Moreover, Limbo’s experience in
banking, being a former Manager of PNB-Limketkai, the Supreme Court held that they are convinced
that he is conscious of the dishonest and fraudulent purpose of approving outright encashment of the
out-of-town checks of these “valued clients”.
On the third and last element, the Court held that there was undue injury to PNB-CDO because,
even prior to clearing, the amounts of the checks were already approved for encashment. During the
period of float, PNB-CDO had to back these amounts with bank’s assets. A definite chunk of PNB-CDO’s
assets were effectively earmarked to service these accounts. In effect, PNB-CDO was obligated to honor
encashments or any withdrawals from the accounts of these “valued clients” to the extent of the face of
the value of the checks. As pointed out by the Sandiganbayan, this entailed lost of interest to PNB-CDO.
Finally, the Supreme Court cited Section X202 of BSP’s 1993 Manual of Regulations of Banks,
which was then in effect, stating that Deposit Against Uncollected Deposits (DAUDs) shall be prohibited
except when the drawings are made against uncollected deposits representing
Manager’s/Cashier’s/Treasurer’s Checks, Treasury Warrants, Postal Money Orders and duly funded “On-
Us” checks which may be permitted at the discretion of the bank. Relatedly, under PNB Manual, out-of-
town checks can generally only be negotiated for deposit or collection, not encashment. Ordinarily, on
the check’s due date, a holder of a check may either proceed directly to the drawee bank and present
the same for payment, or he may deposit it in his account with his bank known as the depository bank
or collecting bank. The check undergoes clearing.