BSP Circular 291 series 2001: MB Resolution 707 MAY 10 2001 decided to authorize the issuance of cashier’s, manager’s or certified checks or other similar instruments in blank or payable to cash, bearer or numbered account as an exception from CIR 259, subject to following grounds:
1. Amount of each check shall not exceed 10,000
2. Buyer of the check is properly identified as required by CIR 259
3. Register of said checks shall be maintained with following minimum information:
a. Date issued b. Amount c. Name of buyer d. Date paid
e. If aggregate instruments purchased by same person within any 30-day period amounts to at least 50,000, the purpose of buyer should be stated
4. Banks which issue as well as those which accept as deposits, said checks in blank or payable to cash, bearer or numbered account shall take measures as may be necessary to ensure that said instruments are not being used/resorted to by the buyer or depositor in furtherance of a money-laundering activity
5. Deposit of said instruments shall be subject to the same requirements/scrutiny applicable to cash deposits
6. Transactions involving said instruments should be accordingly reported to BSP if there is reasonable ground to suspect that said transasctions are being used to launder funds of illegitimate origin.
What is a manager’s check? What is a cashier’s check?
Manager’s check Cashier’s check
One drawn by the bank’s manager upon the bank itself. It is similar to a
cashier’s check both as to effect and use. Check the bank’s cashier on his own or another check.
In effect, it is a BE drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank’s own check and may be treated as a PN with the bank as a maker.
The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof.
Why is a manager’s check considered as good as cash?
A: It holds the same footing as a certified check, which is deemed to have been accepted by the bank that certified it, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a manager’s check is regarded substantially to be as good as the money it represents (PNB vs. Tria)
To satisfy their obligation to Wasabi Company, a manager’s check was obtained by Sposues Yaki and Soba. The check was obtained from Porki Bank. However, the check remained in the possession of the spouses but Wasabi Company was advised that
it is available for withdrawal. Since more than 10 years passed without the amount of the check being withdrawn. Porki Bank reported it to the Bureau of Treasury as among its “unclaimed balances”. Should the amount corresponding to the check be considered part of the Porki Bank’s “unclaimed balances” and therefore, could be the subject of an escheat proceedings?
A: NO, mere issuance of manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not tender it to the intended payee or fails to make an effective delivery, it cannot be said that delivery of the check has taken place.
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debt the account of the spouses was never made. As a result, the assigned fund is deemed to remain part of the account of the spouses who procured the manager’s check. The doctrine that the deposit represented by the manager’s check automatically passes to the payee is inapplicable, because the instrument, although accepted in advance, remained undelivered. The spouses should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed (Rizal Commercial Banking Corp. vs. Hi-Tri Development Corp.)
Certified check One drawn by a depositor upon funds to his credit in a bank which a proper officer certifies will be paid when duly presented for payment.
There is guarantee that upon presentment, it will be accepted.
It is accepted in advance
Certification is equivalent to acceptance.
It is forbidden to issue a stop order payment.
NOTES:
1. Certification is equivalent to acceptance
2. Where holder of the check procures it to be accepted or certified, drawer and all indorsres are discharged from liability thereon
3. 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.
What are the effects of certifying a check?
A: The effects are:
1. It is equivalent to acceptance and is the operative act that makes the bank liable.
2. It amounts to assignment of funds of the drawer in the hands of the drawee.
3. If obtained by the holder, persons secondarily liable are discharged.
Cross check Done by writing 2 parallel lines diagonally on left top portion of checks
The crossing is special where the name of the bank or the business institution is written between the 2 parallel lines, which means that the drawee should pay only with intervention of that company. The crossing is general where the words written between 2 parallel lines are “and Co.” or “for payee’s account only”.
ART 541 Code of Commerce—Maker of any legal holder of a check shall be entitled to indicate that it be paid to a certain banker or institution, or only the words “and company”.
Effects of crossing a check
1. Check may not be encashed but only deposited in the bank
2. Check may be negotiated only once to one who has an account with the bank
3. Act of crossing serves as a warning to holder that check has been issued for a definite purpose, so that he may inquire if he has received the check pursuant to that purpose
Memorandum
check In the form of an ordinary check, with the word “memorandum”, “memo” or “mem” written across its face, signifying that the maker or drawer engages to pay bona fide holder absolutely, without any condition concerning its presentment. Such check is an evidence of debt against the drawer, and although it may not be intended to be presented, has the same effect as an ordinary check, and if passed to a 3rd person, will be valid in his hands like any other check.
Traveller’s check Instruments purchased from bans, express companies or the like, in various denominations, which can be used like cash upon second signature of the purchase. It has the characteristics of a cashier’s check of the issue.
It requires the signature of the purchaser at the time he buys it and also at the time he uses it—that is when he obtains the check from the bank and also at the time he delivers the same to the establishment that will be paid thereby.
5. When required to be presented for payment 186 When
required to be
presented for payment
A check must be presented 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.
The check was presented to the drawee bank 120 days from the date thereof. Is the drawer discharged from the duty to maintain sufficient funds therefor?
A: NO, according to current banking practice, the reasonable period within which to present a check to the drawee bank is 6 months thereafter, the check becomes stale and the drawer is discharged from liability thereon to the extent of loss caused by the delay. Thus, presentment of the check to the drawee bank 120 days (4 months) after its issue was still within the allowable period. The drawer was freed neither from the obligation to keep sufficient funds in his account nor from liability resulting from the dishonor of the check.
Can the holder sue the drawee bank if the latter refuses payment of a check notwithstanding sufficiency of funds?
A: NO, 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. The bank is lot liable to the holder, unless and until it accepts or certifies the check. Thus, if a bank refuses to pay a check notwithstanding sufficiency of funds, the payee-holder cannot sue the bank. The payee-holder should instead sue the drawer who might in turn sue the bank. SEC 189 is a sound law bsed on logic and legal principles. There is no privity of contract between the drawee-bank and the payee.
What is check kiting?
A: KITING: wrongful practice of taking advantage of the float, the tie that elapses between the deposit of the check in one bank and its collection at another. In anticipation of the dishonor of the check that was deposited, the original check will be replaced with another worthless check.
Checks with the notation “account payee only” payable to the order of Machang Company were allowed by Pigue Bank to be deposited in the account of one of the officers of Machang Company. What are the legal implications of the notation “account payee only”?
A: The notation of “account payee only” creates a reasonable expectation that the payee alone would receive the proceeds of the check and that diversion of the checks would be averted. This exception arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other.
The nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account. The fact that the person other than the named payee of the crossed check was representing it for deposit should have put the bank on guard. It should have verified if the payee authorized the holder (officer) to present the same in its behalf, or indorsed it to him. Such misplaced reliance on empty words is tantamount to gross negligence, which is the “absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them”. (Equitable Banking Corporation vs. Special Steel Products).
What are the nature and effects of crossing check?
A: NIL is silent with respect to crossed checks, although the Code of Commerce makes reference to such. Practice that a check with 2 parallel lines in the upper left hand corner means that it could only de deposited and could not be covered to cash. Thus, effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person (payee named therein). The change in the mode of paying the obligation was not a change in any of the objects or principal condition of contract for novation to take place.
The following are the effects of crossing a check:
1. Check may not be encashed but only deposited.
2. Check may be negotiated only once—to the one who has an account with a bank.
3. Act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose.
What is the duty of the bank in case a person other than the named payee presents the crossed check for deposit?
A: It should put the bank on guard. It should have verified if the payee authorized the holder to present the same in behalf or indorsed it to him. The bank’s reliance on the holder’s assurance that he had good title to the 3 checks constitutes gross negligence even though the holder was related to the majority stockholder of the payee. While the check was not delivered to the payee, the suit may still prosper because the payee did not assert a right based on the undelivered check but on quasi-delict.
6. Effect of death of drawer
In case of death of drawer, the bank may refuse payment provided that there was proper notice of the death of drawer given to the bank.
7. Pertinent Philippine Clearing House Corporation Rules
Does the 24-clearing house rule, which requires the drawee bank to return a defective check to the collecting bank within 24 hours to allow the former to recover from the latter apply to altered checks?
A: NO, SEC 21 provides: “Special Return Items Beyond the Reglementary Clearing Period—items which have been subject of material alteration or items bearing forged
endorsement when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same”.
24-hour clearing rule does not apply to altered checks. (AREZA vs. Express Savings Bank).
Antonio Viray, in his book Handbook on Bank Deposits, elucidated: “the 24-hour rule has been modified. In the case of Hongkong & Shanghai vs. People’s Bank reiterated in Metrobank vs. FNCB, the SC strictly enforced the 24-hour rule under which the drawee bank forever loses the right to claim against the presenting/collecting bank if the check is not returned at the next clearing day or within 24 hours. Apparently, the commercial banks felt that strict enforcement of the 24-hour rule was too harsh and made
representations and obtained modification of the rule, which is not incorporated in the Manual of Regulations. Since the same commercial banks controlled the PCHC, incorporating the amended rule in PCHC Rules naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the drawee bank in accordance with the banking practices shall be returned through PCHC/ local clearing office , as the case may be, not later than the next regular clearing (24-hour). The modification is that items which have been subject to material alteration or bearing forged endorsement may be returned even beyond 24-hours so long that the same is returned within the prescriptive period fixed by law. Prescriptive period is 10 years because a check or endorsement is a written contract. The item need not be returned through the clearing house but by direct presentation to the presenting bank.
What is “stop payment”?
A: The drawer has the right to order the drawee to stop payment of a check and this right flows from the rule that the issuance of check by itself is not an assignment of funds by the drawee. If a bank paaus a check after it has been notified to stop payment, it pays on its own responsibility and will not be permitted to charge the account. The drawer may countermand payment if he has a valid defense against the holder of the check, Thus, countermanding of a check is proper where the payee failed to deliver the goods that he was supposed to deliver.