A check is a bill of exchange drawn on a bank payable on demand. (Sec. 185, Negotiable Instruments Law)
A check is (1) a draft or order (2) upon a bank or banking house, (3) purporting to be drawn upon a deposit of funds (4) for the payment at all events of a certain sum of money, (5) to a
62 Records, p. 161.
63 Id., at 155.
64 Exhibit 3-1 (Regent).
65 Exhibits “5” and “5-A” (Regent); records, p. 163.
certain person therein named, or to him or his order, or to bearer, and (6) payable instantly on demand.66
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.
A check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.
(Equitable PCI Bank vs. Ong, 502 SCRA 119)
Check and Inland Bills of Exchange, distinguished
The Supreme Court of the United States, in the leading case of Merchants Bank v. State Bank, says of checks when contrasted with bills of exchange: “Bank checks are not inland bills of exchange, but have many of the properties of such commercial paper, and many of the rules of the law merchants are alike applicable to both. Each is for a specified sum, payable in money—in both cases, there is a drawer, a drawee, and payee.
Without acceptance, no action can be maintained by the holder, upon either, against drawee. The chief points of difference are that (1) a check is always drawn on a bank or banker; (2) the drawer is not discharged by the laches of the holder in presentment, unless he can show that he has sustained some injury by the default; (3) it is not due until payment is demanded, and the statute of limitations runs only from that time; (4) it is, by its fact, the appropriation of so much money of the drawer, in the hands of the drawee, to the payment of an admitted liability of the drawer; (5) it is not necessary that the drawer of a bill should have funds in the hands of the drawee—a check in such case would be a fraud.”67
A check is a draft or order
A bill is also a draft or order; and it is often said that a check is, in legal effect, a bill of exchange drawn on a bank or banking
66 Blair & Hoge v. Wilson, 28 Gratt. 170; Ridgely Bank v. Patton, 109 Ill, 484, cited in Daniel, page 17
67 Merchants’ Bank v. State Bank, 10 Wall. 647, cited in Daniel, page 18 (italics supplied)
house, with some peculiarities.68 In some cases it is called a bill payable on demand,69 and in others an inland bill, or in the nature of an inland bill, payable on demand;70 and the expression that a check is “like a bill” has been criticized on the ground that “nihil simile est idem,” whereas “checks are bills, or rather bill is the genus, and check is a species,”71 In form a check is a bill on a banking house, and it is perfectly correct to say that it is a bill with some peculiarities, or in other words, a species of bill of exchange.
(Daniel, page 18)
Characteristics of a check
A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may be treated simply as proof of an obligation. (Sps. Pacheco vs. Court of Appeals, G.R. No.
126670, December 2, 1999, [Ynares-Santiago, J.])
A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and negotiations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest. (Mitra vs. People of the Philippines, G.R. No.
191404, July 5, 2010)
As a general rule, checks and other papers deposited in a bank for collection remain the property of the depositor, and the bank performs the service of collection as his agent, even though it is authorized to apply the proceeds on a debt of the owner.” (7
68 Billgerry v. Branch, 19 Gratt. 418; Cruger v. Armstrong, 3 Johns. Cas. 5;
State v. Crawford, 13 La. Ann. 301, ibid
69 Harker v. Anderson, 21 Wend. 372; Edwards on Bills, 396, ibid
70 Merchant’s Bank v. Spicer, 6 Wend. 445; Purell v. Allemong, 22 Gratt. 742, ibid
71 Matter of Brown, 2 Story, 502, ibid
C. J., sec. 245, pp. 597, 598; Richardson vs. New Orleans Coffee Co., 102 Fed., 785; Philadelphia vs. Eckles, 98 Fed., 485;
Commercial Nat. Bank vs. Armstrong, 148 U. S., 50; St. Louis, etc. R. Co. vs. Johnston, 133 U. S., 566; Ward vs. Smith, 19 Law ed., 207; Carpenter vs. National Shawmut Bank, 187 Fed., 1.)72 Is Check considered a ‘legal tender’?
A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. (Tibajia vs. CA, G.R. No. 100290, June 4, 1993, [Padilla, J.]) However, in the case of Fortunado vs. Court of Appeals73 the Supreme Court stressed that, “We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objections of the creditor.”
In Cebu International Finance Corporation vs. Courts of Appeals, Vicente Alegre74, the High Court ruled that: “[i]n a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In Philippine Airlines, Inc. vs.
Court of Appeals75, this Court held that: “[s]ince a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (citation omitted).”
Moreover, the following provisions support the ruling of the Tibajia case, to wit:
a. Article 1249 (NCC) The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
72 Chinese Grocer’s Association vs. American Apothecaries Co., G.R. No. L-43667, March 31, 1938, [Villa-Real, J.:]
73 G.R. No. 78556, 25 Paril 1991, 196 SCRA 269.
74 G.R. No. 123031, October 12, 1999
75 18 SCRA 557 (1990)
produce the effect of payment only when they have been cashed, or when through the fault of the creditor they may have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
b. Section 1 (R.A. 529) Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred.
Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.
c. Section 63 (R.A. 265, Central Bank Act) Legal Character—Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.
However, noteworthy is the fact that the prohibition in Section 1 of R.A. 529 does not apply when:
a. Transactions were the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial and banking institutions so long as the funds are Identifiable, as having emanated from the sources enumerated above;
b. Transactions affecting high priority economic projects for agricultural industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds;
c. Forward exchange transactions entered into between banks or between banks and individuals or juridical persons;
d. Import-export and other international banking financial investment and industrial transactions.
With the exception of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provision, in, which cases the terms of the parties’ agreement shall apply, every other domestic obligation heretofore or hereinafter incurred whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, that if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in foreign currency stipulated to be payable in the currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coins and currency, including Central Bank notes, heretofore and hereinafter issued and drawn by the Government of the Philippines shall be legal tender for all debts, public and private. (As amended by RA 4100, Section 1, approved June 19, 1964)
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred. As we have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before us the obligation of the appellant to pay the appellee the 20% of $ 140,000.00, or the sum of $ 28,000.00, accrued on August 25,
1961, or after the enactment of Republic Act 529. It follows that the provision of Republic Act 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment of the obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co.76 where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be followed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on the date of defendant’s breach. This is also the ruling of American court as follows:
The value of domestic money of a payment made in foreign money is fixed with respect to the rate of exchange at the time of payment. (70 CJS p. 228)
According to the weight of authority the amount of recovery depends upon the current rate of exchange, and not the par value of the particular money involved. (48 C.J. 605-606)
The value in domestic money of a payment made in foreign money is fixed in reference to the rate of exchange at the time of such payment. (48 C.J. 605)77
It is to be noted that while an agreement to pay in dollars is declared as null and void and of no effect, what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor’s claim for payment, as it specifically provides that “every other domestic obligation…whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.” A contrary rule would allow a person to profit or enrich himself inequitable at another’s expense. (Ponce vs. Court of Appeals, G.R. No. L-49494, May 31, 1979, [Melencio-Herrera, J.])
76 47 Phil 115, 142.
77 Kalalao vs. Luz, G.R. No. L-27782, July 31, 1970.
As held in Eastbound Navigation, Ltd. vs. Juan Ysmael &
Co., Inc., 102 Phil 1 (1957), and Arrieta vs. National Rice & Corn Corp.78, if there is any agreement to pay an obligation in a currency other than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to Republic Act No 529, and the most that could be demanded is to pay said obligation in Philippine currency. In other words, what is prohibited by RA No.
529 is the payment of an obligation in dollars, meaning that a creditor cannot oblige the debtor to pay him in dollars, even if the loan were given in said currency. In such a case, the indemnity to be allowed should be expressed in Philippine currency on the basis of the current rate of exchange at the time of payment.79 (supra)
Exception to the Rule; check not a legal tender.
In the case of Salvacion F. Vda. De Eduque vs. Jose M.
Ocampo80, the Supreme Court already upheld that Japanese military notes were legal tender during Japanese occupation. But appellant argues, further, that the consignation of a cashier’s check, which is not legal tender, is not binding upon him. This question, however, has never been raised in the lower court. Upon the contrary, defendant accepted impliedly in the consignation of the cashier’s check when he himself asked the court that out of the money thus consigned he be paid the amount of the second loan of P15,000. It is a rule that “a cashier’s check may constitute a sufficient tender where no objection is made on this ground.”81
If effect, when there is implied acceptance, it thus operates as a waiver on the part of the person receiving it to later question the same. He is estopped by virtue his act of implied acceptance.
What is a crossed-check?
This is a check with two parallel lines in the upper left hand corner. (Bank of America, NT & SA, vs. Associated Citizens Bank, G.R. No. 141001, 141018, May 21, 2009, [Carpio, J.])
78 10 SCRA 79 (1964)
79 Kalalo vs. Luz, 34 SCRA 337 (1970)
80 G.R. No. L-222, 26 April 1950, penned by Chief Justice Moran
81 62 C.J., p. 670; see also 40 Amer. Jur. P. 764 (emphasis supplied)
Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words “and Co.” or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit. (State Investment House vs. Intermediate Appellate Court, G.R. No.
72764, July 13, 1989, [Fernan, C.J:]) Illustrative Case:
CHAN WAN vs. TAN KIM and CHEN SO G.R. No. L-15380, Sept. 30, 1960 BENGZON, J:
This suit to collect eleven checks totaling P4,290.00 is here for decision because it involves no issue of fact.
Such checks payable to “cash or bearer” and drawn by defendant Tan Kim (the other defendant is her husband) upon the Equitable Banking Corporation, were all presented for payment by Chan Wan to the drawee bank, but they “were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer.”
At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness stand. His attorney, however, testified only to identify the checks — which are Exhibits A to K — plus the letters of demand upon defendants.
On the other hand, Tan Kim declared without contradiction that the checks had been issued to two persons named Pinong and Muy for some shoes the former had promised to make and
“were intended as mere receipts”.
In view of such circumstances, the court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed
checks should not have been deposited instead with the bank mentioned in the crossing.
It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it for failure of proof, and from such dismissal they did not appeal.
The only issue is, therefore, the plaintiff’s right to collect on the eleven commercial documents.
The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the liabilities arising therefrom, does not mention “crossed checks”. Art. 541 of the Code of Commerce refers to such instruments.82 The bills of Exchange Act of England of 1882, contains several provisions about them, some of which are quoted in the margin.83
In the case of Philippine National Bank vs. Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of said Bills of Exchange Act because the Negotiable Law, originating
82 SEC. 541. — The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words “and company.”
The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made.
83 76. [General and Special Crossing Defined.] — (1) Where a check bears across its face an addition of —
(a) The words “and company” or any abbreviation thereof between two parallel transverse lines, either with or without the words “not negotiable;”
or
(b) Two parallel transverse lines simply, either with or without the words
“not negotiable;” that addition constitutes a crossing, and the cheque is crossed generally.
(2) Where a cheque bears across its face an addition of the name of a banker, either with or without the words “not negotiable,” that addition constitutes a crossing, and the cheque is crossed specially and to that banker.
79. . . . (2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays the same, or pays the same, or pays a cheque crossed generally otherwise than to a banker, or if crossed specially otherwise than to the banker to whom it is crossed, or his agent for collection being a banker, he is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid. (Taken from Brannan’s Negotiable Instruments Law, 60th Ed. 1250-1251.)
from England and codified in the United States, permits resort
from England and codified in the United States, permits resort