One of the major developments today is the use of documents as substitutes for payment of money. These documents are called Negotiable Instruments. Although they do not constitute legal tender as defined under our Civil Code, and are not money, they are used as an alternative for money. A negotiable instrument differs from money, however, in that the former is valuable or worthless depending upon the financial ability of the parties to them. The purpose of the law is to place negotiable instruments on such footing that it would be freely accepted without question in commercial transactions and thereby facilitate trade.
Checks
There are two (2) primary types of negotiable instruments commonly used today. These are, checks and promissory notes. The check is primarily used for immediate payment, while the promissory note is intended for the circulation of credits. It is used more than any other instrument of credit as a means of making payment. The use of checks automatically provides a receipt for payment and serves as convenient records of financial transactions.
An ordinary check refers to a bill of exchange, a type of document that is drawn by a depositor, also called the drawer, on a bank, also known as the drawee. By virtue of the check, the depositor requests the bank to pay a person named on the check, called the payee, or to the order of the payee or to the bearer of the check, a certain amount or sum of money.
The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer. In such a case, the bank becomes liable only after it accepts or certifies the check. After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.
In several instances, the Supreme Court pointed out that a check functions more than a promissory note since it not only contains an undertaking to pay an amount of money but is an “order addressed to a bank and partakes of a representation that the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation to the bank.
Manager’s Check and its Nature
There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn.
Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand. Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee.
As previously discussed in this article, our jurisprudence defines a manager’s check as a check drawn by the bank’s manager upon the bank itself and accepted in advance by the bank by the act of its issuance. It is really the bank’s own check and may be treated as a promissory note with the bank as its maker. Consequently, upon its purchase, the check becomes the primary obligation of the bank and constitutes its written promise to pay the holder upon demand. It is similar to a cashier’s check both as to effect and use in that the bank represents that the check is drawn against sufficient funds.
In view of the foregoing, in the commercial world, manager’s check is regarded substantially to be as good as the money it represents, being primary obligation of the issuing bank and accepted in advance by their mere issuance.
However, while there is no question about the nature of manager’s checks being as good as cash, since it contains an unconditional commitment to pay on the part of the issuing bank, our courts still ruled that payment by the issuing bank may be judicially stopped in case the payee himself had not performed his reciprocal obligation for which the issuance of the Manager’s Check was made.
Source: Alburo Law
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