ALL 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

CRIMINAL AND REMEDIAL LAW ASPECTS OF CHECK

2 Criminal statutes that involve check

1. Batas Pambansa Blg. 22 – the bouncing checks law

-punishes a person who issues a worthless checks

-MALUM PROHIBITUM – the mere commission of the act that the law prohibits, and not its character or
effect that determines whether or not the provision has been violated; and malice or criminal intent is
completely immaterial. Opposite of Malum in se example such as murder robbery

-2 WAYS OF VIOLATING BP 22

(1) By making or drawing and issuing a check to apply on account or for value, knowing at the time of issue that
the check is not sufficiently funded;

Elements: (a) the making, drawing and issuance of any check to apply for account or for value; (b) the
knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment; (c) the subsequent dishonor of
the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment

(2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to do so to cover
the full amount of the check when presented to the drawee bank within a period of 90 days

Elements: (a) any person, makes or draws and issues a check; (b) such person has sufficient funds in or
credit with the drawee bank; (c) failure to keep sufficient funds or to maintain a credit to cover the full amount of
the check if presented within a period of 90 days from the date appearing thereon; and (d) for which reason it
was dishonored by the drawee bank
90 DAY PERIOD IS NOT AN ELEMENT OF VIOLATING BP 22 but simply one of the conditions for the prima facie
presumption of knowledge of lack of funds to arise. Also does not discharge the accused of the duty to maintain
sufficient funds in the account within the reasonable time

PENALY FOR VIOLATING BP 22

Imprisonment for at least 30days but not more than one year Or A fine of at least doble the amount of
the check not to exceed P200,000

Basis of this penalties are section 1 of bp 22 and SC A.C No. 12-2000 and 13-01

ADMINISTRATIVE CIRCULAR NO. 12-2000

SC declares that court should follow the policy of redeeming valuable human material and
preventing unnecessary deprivation of personal liberty and economic usefulness with due regard to the
protection of the social order.

ADMINISTRATIVE CIRCULAR NO. 13-01

SC clarifies that the penalty is not removed but the courts should reserve imposing Imprisonment
as a penalty for serious cases when the violation of BP 22 negatively affects the social order

2. Revised Penal Code of the Philippines

Elements, penalties and prescription

2 CRIMES INVOLVING CHECKS UNDER THE REVISED PENAL CODE

1. CRIME OF ESTAFA/SWINDLING UNDER ARTICLE 315 PARAGRAPH 2(D)

ELEMENTS: (A) a check is postdated or issued in payment of an obligation contracted at the time
the check is issued; (b) lack of insufficiency of funds to cover the check; and (c) damage to the payee thereof

Damage of this is penalized depending on the amount involved

ARTICLE 315 OF THE REVISED PENAL ODE PENALTIES

(A) prision correctional in its maximum period to prision mayor in its minimum period, if
the amount is P12,000 but does not exceed P22,000/. If the amount exceeds this the penalty shall be in its
maximum period, adding one year for each additional P10,000. Shall not exceed 20 years.

PRISION CORRECCIONAL – minimum and medium periods if the amount is over P6,000 but does not
exceed P12,000

ARRESTO MAYOR – in its maximum period to prision correctional in its minimum period if such amount is
P200 but does not exceed P6,000

2. LIST OF CRIMES FOUND IN TITLE 4, CHAPTER 1, SECTION 3, COVERING ARTICLES 166,167,168

AND 169

THE ELEMENTS OF ARTICLES 166 AND 167 –

covers the obligation or security of the united states or of the Philippines

 Not go into details, this section covers all bonds, certificates of indebtedness, national
bank notes, coupons, united states or Philippine islands notes, treasury notes, fractional notes, certificates of
deposit, bills, check, or drafts for money.

Fines as penalties increased by RA No. 10951 which was enacted on July 25, 2016

EFFCECT OF ISSUING WORTHLESS CHECKS TO THE LEGAL PROFESSION

Suspending in the practice of law ranging from 6mos to 2years and even disbarment

CAUSES OF DISHONORING A CHECK

ON THE ACCOUNT OF ISSUER OR DRAWER: (1) account is closed, (2) no account at all (3) drawn against
uncollected deposit (4) drawn against insufficient funds (5) stop payment order

PRESCRIPTION OF CRIMES

By prescription means the period within which a criminal case be filed against the person who violated
the criminal laws mentioned

The criminal complaint for violation of BP 22 must be filed within a period of 4 years from the time of the
commission of the crime
VIOLATION OF ARTICLE 315: AND 166 AND 167 OF THE REVISED PENAL CODE

The prescriptive period shall be determined by the amount allegedly swindled by the accused and the
penalties involved, respectively

ARTICLE 25 OF THE REVISED PENAL CODE

Provides that prision mayor and reclusion perpetua are afflictive penalties; and that prision correccional is
a correctional penalty

When afflictive, correctional, or light penalty. - A fine, whether imposed as a single of as an alternative penalty, shall
be considered an afflictive penalty, if it exceeds 6,000 pesos; a correctional penalty, if it does not exceed 6,000 pesos
but is not less than 200 pesos; and a light penalty if it less than 200 pesos.

ARTICLE 90 OF THE REVISED PENAL CODE

reclusion temporal prescribes in 20 years, other afflictive penalties such as prision mayor prescribes in 15
years, and correctional penalties prescribes in 10 years

Despite the filing of criminal cases, civil case base on contracts prescribes In ten years from last demand

Case against lawyer who issued worthless check is imprescriptible or does not prescribe at all

REMEDIAL LAW ASPECT

1) where to file the case? Criminal case can be file any of the places where the elements occurred

2) which court takes jurisdiction of the case? FOR BP 22 CASES, THE INFORMATION IS FILED BEFORE THE
PROPER MUNICIPAL TRIAL COURT. AND FOR VIOLATION OF ARTICLE 315 OF THE REVISED PENAL CODE,
DEPENDING ON THE AMOUNT INVOLVED, THE CASE COULD BE FILED BEFORE THE MUNICIPAL TRIAL COURT OR
THE REGIONAL TRIAL COURT

DEFENSES AVAILABLE TO THE ACCUSED

The dishonored check was paid within five banking days from receipt of notice of the dishonor

There was no written notice of dishonor given to the drawer or issuer or lack of notice of dishonor (most
common defense) – the notice must be proven to have been actually received by the accused

The stop payment was made due to a valid reason

The payee was informed that the check had no sufficient funds during the issuance

The respondent paid the complainant the value of the check before the criminal case was filed in the
court; and

There is substantial change or novation of the obligations of the parties involved

Principal Penalties Capital punishment:

 Death.
Afflictive penalties:

 Reclusion perpetua,

 Reclusion temporal,

 Perpetual or temporary absolute disqualification,

 Perpetual or temporary special disqualification,

 Prision mayor.

Correctional penalties:

 Prision correccional,

 Arresto mayor,

 Suspension,

 Destierro.

Light penalties:

 Arresto menor,

 Public censure.

Penalties common to the three preceding classes:

 Fine, and

 Bond to keep the peace.

                                                                                  Accessory Penalties

 Perpetual or temporary absolute disqualification,

 Perpetual or temporary special disqualification,

 Suspension from public office, the right to vote and be voted for, the profession or calling.

 Civil interdiction,

 Indemnification,

 Forfeiture or confiscation of instruments and proceeds of the offense,

 Payment of costs.

Article 27. Reclusion perpetua. - The penalty of reclusion perpetua shall be from twenty years and one day to forty
years.

 Reclusion temporal. - The penalty of reclusion temporal shall be from twelve years and one day to twenty
years.
 Prision mayor and temporary disqualification. - The duration of the penalties of prision mayor and
temporary disqualification shall be from six years and one day to twelve years, except when the penalty of
disqualification is imposed as an accessory penalty, in which case, its duration shall be that of the principal
penalty.
 Prision correccional, suspension, and destierro. - The duration of the penalties of prision correccional,
suspension and destierro shall be from six months and one day to six years, except when suspension is
imposed as an accessory penalty, in which case, its duration shall be that of the principal penalty.
 Arresto mayor. - The duration of the penalty or arresto mayor shall be from one month and one day to six
months.
  Arresto menor. - The duration of the penalty of arresto menor shall be from one day to thirty days.
 Bond to keep the peace. - The bond to keep the peace shall be required to cover such period of time as the
court may determine. (As amended by Section 21, Republic Act No. 7659.)

BP 22  Imprisonment of 30 days to 1 year and/or Fine of not less than the amount, but not more than double the
amount of the check, which shall not exceed Php. 200,000.00 ESTAFA a. Prision Correccional in its maximum period
to prison mayor in its minimum period, if the amount of Php 12,000.00 but does not exceed Php 22,000.00. b. If the
amount exceeds this, the penalty shall be in its maximum period, adding one year for each additional Php 10,000.00;
and c. Shall not exceed 20 years.