Check - a bill of exchange drawn on a bank payable on demand (Sec.

185)

 Distinctions between a Check and Bill of Exchange

CHECK BOE
– always drawn upon a bank or banker – may or may not be drawn against a bank
– always payable on demand – may be payable on demand or at a fixed
or determinable future time
– not necessary that it be presented for acceptance – necessary that it be presented for
acceptance
– drawn on a deposit – not drawn on a deposit
– the death of a drawer of a check, with knowledge by – the death of the drawer of the ordinary bill
the banks, revokes the authority of the banker pay of exchange does not
– must be presented for payment within a reasonable – may be presented for payment within a
time after its issue   (6 months) reasonable time after its last negotiation.

Distinguished from Draft:

Check Draft

Parties involved are the drawer, drawee,

Parties involved are the drawer and payee
and payee

Drawn by one branch of a bank to another branch of the same

Drawn by an account holder of a bank
bank

Signed by the account holder before Does not usually have a signature as it is signed by an
release automated machine

Needs authorization from the bank and

Reliably takes out money from the account
the account holder

Prone to fraudulent activities and Highly protected by the bank and risks are avoided in taking out
counterfeiting acts money

Need to be cleared and approved first Assured and confirmed money

Funds can sometimes be insufficient and Based on real credit and money in the account; once a draft is
can bounce produced, the money is already used

The person who draws the bill is called the drawer. He gives the order to pay money to the third party.

The party upon whom the bill is drawn is called the drawee. He is the person to whom the bill is
addressed and who is ordered to pay. He becomes an acceptor when he indicates his willingness to
pay the bill. The Drawee of a Check in Bill of Exchange is always a Banker.
The party in whose favor the bill is drawn or is payable is called the payee.

Kinds:
• Manager’s / Cashier’s Check – drawn by a bank on itself and therefore, it is a primary
obligation of the bank.
o It is accepted in advance by the act of its issuance and is not subject to countermand
by the payor after indorsement.
o The bank’s manager signs manager’s check while cashier’s check is signed by the
bank cashier.

• Memorandum Check – it is like an ordinary check except that the word “memorandum,” “mem”
or “memo” is written upon the face of the check, signifying that the drawer engages to pay the
bona fide holder absolutely, and not upon a condition to pay upon presentment at maturity and
if due notice of the presentment and non- payment should be given. This check is not to be
presented for payment, but will be redeemed by the drawer himself.

• Certified Check – one drawn by a depositor upon funds to his credit in a bank which a proper
officer of the bank certifies will be paid when duly presented for payment

• Traveler’s check – one upon which the purchaser’s signature must appear twice
– at the time he buys it and also at the time he uses it. It has the characteristics of a
cashier’s check of the issuer.

• Crossed check– when 2 parallel lines are drawn across its face or across a corner thereof. If
the name of a bank appears between the parallel lines, the check is said to be specially
crossed, and payment should be made only if presented by the named bank. If no name
appears between the parallel lines, the check is said to be generally crossed, and payment
should be made only upon presentment by some bank.

o Effects of crossing a check:

a. That the check may not be encashed but only deposited in the bank;
b. That the check may be negotiated only once to one who has an account with
a bank; and
c. That the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received
the check pursuant to that purpose.

• Stale check – one which has not been presented for payment within a reasonable time after its
issue.

Sec. 186. Within what time a check must be presented. - A check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to the
extent of the loss caused by the delay.
 
Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on which it is drawn,
the certification is equivalent to an acceptance.
 
Sec. 188. Effect where the holder of check procures it to be certified. - Where the holder of a check
procures it to be accepted or certified, the drawer and all indorsers are discharged from liability
thereon.
 
Sec. 189. When check operates as an assignment. - A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable
to the holder unless and until it accepts or certifies the check.

Effect of death of drawer

-The authority of the drawee bank to honor a check drawn against it is said to be terminated by
the death of the drawer. There is no provision in the NIL expressing this rule. However, the Bill of
Exchange of 1882 provides that notice of the customer’s death revokes the banker’s authority to pay.
Section 75 of the Bill of Exchange Act of 1882 provides:
o 75. The duty and authority of a banker to pay a cheque drawn on him by his customer
are determined by:
 Countermand of payment
 Notice of customer’s death
-Moreover, the National Internal Revenue Code already disallows withdrawal from the bank
account of the deceased unless proper taxes are paid to the BIR.

Pertinent Philippine Clearing House Corporation Rules

On July 29, 1977, the Philippine Clearing House Corporation (PCHC) was incorporated as a private
corporation co-equally owned by all commercial banks enlisted as members of the Bankers Association
of the Philippines (BAP). Its main purpose was to automate the Cheque Clearing System thru the
medium of MICR-encoded cheques. The existing system then was faced with an ever increasing
volume of items that were manually processed, sorted and tabulated by the banks in tally sheets to
arrive at clearing balances.

With the Clearing House Rules and Regulations approved and subsequently the Arbitration
Mechanisms in place, the PCHC commenced its LIVE operations on June 06, 1980 and stood proud
being the FIRST Automated Cheque Clearing House in Southeast Asia.

What is a Clearing House?

A clearing house is a financial institution that facilitates the exchange, clearing, and effectivity, of
negotiable instruments. There used to be a cut-off for presentment for payment of checks before the
bank. At present, there is none, and cut off time is generally considered as the time when the bank
closes. The bank messenger need not deliver the physical checks (as how bankers call it) to the
clearing house, but, the physical checks will be scanned and sent to the clearing house. This is also
the reason why those checks issued in the past would be given back to the issuer. Now, it is the bank
that keeps the physical check.