All About Checks
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Czarina JaneAll About Checks
Uploaded by
Czarina JaneALL ABOUT CHECKS
COMMERCIAL LAW
NEGOTIABLE INSTRUMENTS LAW
Enactment: feb 3 1911, effectivity: June 2 1911
Requirements of negotiability
In writing and signed by the maker or the drawer
Must contain an unconditional promise to order or to pay a sum certain in money
Must be payable on demand, or at a fixed or determinable future time
Must be payable to order or to bearer
If addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty
Common examples of negotiable instrument
Promissory notes – could be personal, commercial, real estate and investment type. Certificate
of deposit, bond and debenture
Bills of exchange – depends on the time period, objective and territory. Draft, inland and foreign
bill, time draft, sight or demand draft, trade acceptance, bankers’ acceptance and check
Purpose of the law
Facilitate commercial paper transactions
Purpose and function of negotiable instrument
Substitute for money
Medium of exchange in commercial transactions
Medium of credit transactions
Convenience and security
Instrument a tool use for a specific function
Negotiability of instrument
Represent value
Freely or unconditionally transferrable from one person to another
Represents title
HOLDER
Has the authority to demand payment and to be paid
What is a check
Parts
(front) Account number, account name, check number, date of issuance or maturity,
name of the payee or creditor, amount payable or drawn in figure, amount payable in words, drawee
bank’s name and address, signature of the drawer or issuer of the check, (BACK) endorsement, name of
the payee and the signature, the account number to which the funds will be deposited, the drawee
bank’s employee writes
PARTIES TO A CHECK
Drawer or issuer debtor, the one ordering the drawee bank to pay the payee
Drawee is the bank where the drawer maintains an account and ordered to pay the check upon
presentment of payment
Payee, who is the person to whom the drawee bank should give the amount of money as
written in the check
If the payee will endorse the check to another person is called 2 nd endorsement
ISSUANCE OF CHECK is the completion of the check to make it available for use of the drawer and
eventually for other people for the intended transaction or activity
Effects of date of maturity
The check becomes payable on demand
Postdating is allowed under the law unless if the purpose is to sustain fraud
NEGOTIABLE INSTRUMENTS LAW – SECTION 186
Checks must be presented for payment within a reasonable time after its issuance, otherwise,
the drawer is discharge from liability
NIL - SECTION 193
In determining reasonable time regard is to be had to the nature of the instrument, the usage of
trade or business with respect to such instruments, and the facts of the particular case
PACHECO VS COURT OF APPEALS CASE# G.R. NO. 126670 DEC 12 1999
By current banking practices, a check becomes stale after more than six months, exempted of
this are manager’s, cashier’s and treasurer’s checks under the CLEARING HOUSE OPERATIONS
MEMORANDUM NO. 96
TYPES OF CHECK
Bearer check – which are payable to whoever is the holder and the payee is not named example
if the check is payable to cash
Self-check – is that check payable to the drawer himself
Traveler’s check – is used by travelers so that they do not need to bring in money while in
transitu and like self-check, it is payable to the name of the drawer or issuer himself
Crossed check - is one containing two parallel lines in which the payee’s name is found and
could not be presented for payment other than the person whose name is written within the parallel
lines
Official or banker’s check, like manager’s, cashier’s, or treasurer’s check, these are guaranteed
by the bank, check is funded for one year usually
Certified checks it is like the official or banker’s checks, also guaranteed by the drawee bank
Electronic checks, it is like the check is found in the computer in electronic format with the same
legal implications
Money order is usually practiced in the postal service, and once the money order is received by
the intended recipient or payee, he can have it exchanged for cash
Ante/post-dated checks are those checks issued on a particular date but the date as found in the
check itself could be prior to or after the date of issuance
Defective checks are those like that of a stale check or mutilated, which the bank may dishonor
or ask for reconfirmation
Giant checks are those check that you see on tv carried by a person who just won the lottery.
The person will receive the actual cash represented by the check
STALE CHECK – a check not presented before the drawee bank for payment within the supposed six-
month period from date of issuance/maturity. it is not considered as an invalid check but an irregular
check
LEGAL EFFECTS when check becomes stale
The negotiability of the instrument ceases not the obligation and the right of the parties
The payee could not assert rights out of the check, but it doesn’t mean that the issuer is
free from liability
WHAT IS A CLEARING HOUSE – it is a financial institution tasked to facilitate the exchange, clearing, and
effectivity of negotiable instruments
PHILIPPINE CLEARING HOUSE CORPORATION and BANKERS ASSOCIATION OF THE PHILIPPINES –
it provides check clearing services covering 69 geographical regions processing a daily average of 704k
clearing items from more than 9k participating bank branches nationwide
WHAT IS ENDORSEMENT
FIRST ENDORSEMENT - payee directly to the bank
SECOND ENDORSEMENT – with the participation of a third person or an endorsee, also known
as rediscounting. This is discouraged to avoid banks becoming instruments of money laundering and
other illegal activities
CIRCULAR LETTER SERIES OF 2002 BANKO SENTRAL NG PILIPINAS – REQUIREMENTS BANK SHOULD
HAVE FOR SECOND ENDORSEMENTS
It should be from properly identified clients
Only after establishing the nature of the businesses of said client justifies, or at least, makes
practical the deposit of second-endorsement checks
