Concept of Legal Tender

Legal tender refers to the currency which may be used for payments of debts whether public or private,
and which the creditor cannot refuse to accept. In the Philippines, the legal tender covers all notes and
coins issued by the Central Bank of the Philippines.

Also, under Presidential Decree No. 72, effective November 29, 1972, there is a limit in the use of coins
as legal tender to release the creditor from the burden of counting huge amounts of money in coins.
The creditor will find it troublesome not only to count them, but also to carry them. So, he may not
accept coins as payment beyond what the law allows.

1.) 1 centavo coins and 5 centavo coins are legal tender up to P20.00.

2.) Other coins (.10, .25, and P1) are legal tender up to P50.00

3.) Paper bills or money issued by the Central Bank are valid legal tenders for any amount unlike coins.

Payment in Negotiable Documents

Examples of negotiable documents are checks, promissory notes payable to order or bills of exchange
are not considered as legal tenders. Therefore, the creditor has the right to refuse acceptance of these
documents as payment, even if they happen to be good. The law says that these papers shall produce
the effect of payment only when they have been encashed – which means they have been honored by
the drawee bank and have been exchanged with cash money.

Rule on payment in check

A check is not a legal tender, whether it is an ordinary check or manager’s check. The rule applies even
if the check was consigned in court. However, there are exceptions to this rule:

1. When a manager’s check was consigned with the court which the clerk of court endorsed to the
Provincial Treasurer and which then honored by the bank and credited to teh treasurer’s account;

2. When the creditor has accepted the debtor’s check for the repurchase of the latter’s property, the
former cannot, the following day refuse to accept the check anymore as payment. The creditor is under
estoppel having induced the debtor to believe that he had consented such form of payment;

3. When after the payment of the check in court the vendor a retro, the vendee a retro petitioned the
court to allow him to withdraw the amount in deposit, the payment in check is valid;
4. When the check had lost its value due to the fault of the creditor, such when he unreasonably
delayed the presentation of the check with the drawee bank for payment, the payment in check is valid;

5. When the foreign bill of exchange lost its value for the reason that the creditor had neglected to make
a protest. Had there been a timely protest, the debtor could have pursued the right of recourse against
the parties who are secondarily liable.