1
DISCHARGE WAIVER OF OBJECTION TO TENDER OF PAYMENT BY
SEC. 119. A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the
principal debtor;
(b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract
for the payment of money;
(e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right
PAYMENT BY PRINCIPAL DEBTOR
In order to discharge the instrument, the payment must be a
payment in due course, and second, a payment made by the
principal debtor
If payment is made before the date of maturity, the instrument
is not discharged as the payment is not in due course
Where payment is made by a party who is not a primary
obligor or an accommodation party, his payment only conceals
his own liability and those who are obligated after him. All prior
parties primarily or secondarily liable on the bill, are liable to
such a payer, and the payer may cancel indorsements
subsequent to his own and reissue the paper, and it will be
valid as against the prior parties
PAYMENT BY THIRD PERSONS
If payment is made by a third person, the instrument is not
discharged because payment is not made by the person
principally liable
Not any one who desires may pay the instrument and then
recover of the maker. He must be a person who has in some
way made himself liable for the payment of the instrument.
Exception: where an instrument has been protested and
someone voluntarily makes payment supra protest or for honor.
And if the instrument was to give money in payment, the
instrument is discharged.
SUMMARY OF DISCHARGE BY PAYMENT 1. Payment by a
person ultimately liable, whatever his position in the paper, is a
discharge of the instrument
2. Payment by an accommodation party isnt a discharge of the
instrument, whatever his position thereon and whether the
indorsement be regular or anomalous
3. Payment by the drawer or indorser is not a discharge of the
instrument
PRINCIPAL DEBTOR
Person ultimately bound to pay the debt
PAYMENT BY CHECK OR OTHER NEGOTIABLE PAPER 1.
When they actually have been cashed or 2. When, through the
fault of the creditor, they have been impaired
A creditor isnt bound to accept a check in satisfaction of his
demand because a check, even if good when offered, doesnt
meet the requirements of legal tender
CHECK
It is the general rule that an object to a tender must, to be
available to the creditor, be made in good time and that the
grounds for objection
must be specified; and that an objection to tender on one
ground is a waiver of all other objections which could have
been made at that time
It is ordinarily required of one to whom payment is offered in the
form of a check, that he makes his objection at the time of the
offer of by check instead of an offer of payment in money
Reason for the ruleto afford the debtor the opportunity to
secure the specific money which the law prescribes shall be
accepted in payment of debts
PAYMENT BY ACCOMMODATED PARTY
The one ultimately liable on the accommodation instrument is
the latter
Hence, his payment in due course discharges the instrument
as if payment was made by the principal debtor under
paragraph (a)
INTENTIONAL CANCELLATION
The cancellation must be intentional and made by the holder
There must be an intention to cancel a negotiable instrument by
the holder thereof as such intention is an essential element of
discharge on a negotiable instrument and a negotiable note in a
torn condition is presumed cancelled by the holder thereof
WILL AN EXTENSION OF TIME GRANTED BY THE HOLDER
TO THE DEBTOR DISCHARGE THE INSTRUMENT? No,
according to the majority view
Because while it isnt omitted in Section 120, it is omitted in
Section 119
Shows the legislative intent to that an extension of time by the
holder will not discharge the instrument
PRINCIPAL DEBTOR ACQUIRES INSTRUMENT
Reacquisition must be by the principal debtor and in his own
right at or after the date of maturity
In his own rightnot in a representative capacity
WHEN INSTRUMENT REACQUIRED BEFORE MATURITY A
reacquisition by the principal debtor in his own right but before
maturity will not discharge the instrument
It will merely be a negotiation back to the principal debtor
DISCHARGE BY OPERATION OF LAW
Sec. 120. When persons secondarily liable on the
instrument are discharged. - A person secondarily liable on
the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the
holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
1

(e) By a release of the principal debtor unless the holder's
right
of recourse against the party secondarily liable is
expressly reserved;
(f) By any agreement binding upon the holder to extend the
time of payment or to postpone the holder's right to
enforce the instrument unless made with the assent of the
party secondarily liable or unless the right of recourse
against such party is expressly reserved.
EFFECT OF SECTION 120 IS A SURETYSHIP
Generally the courts regard this provision as exclusive, as a
complete codification of the law of discharge of secondary
parties by the six methods therein set forth
ACTS DISCHARGE INSTRUMENT
Any of the acts that will discharge an instrument under
Section 119 will discharge a party secondarily liable thereon,
such as payment in due course by the maker. This will
discharge the indorsers in the note.
INTENTIONAL CANCELLATION
A, maker B, payee
BCDEF REQUISITES OF AGREEMENT FOR EXTENSION OF TIME
F then successively cancels the signature of D. D is
discharged.
No consideration is necessary to support a discharge by
intentional cancellation of an indorsers signature by the holder.
DISCHARGE OF PRIOR PARTY
The intentional cancellation of Ds signature also discharges
E, as D is a prior party to E
And according to this paragraph, the discharge of a prior party
discharges parties subsequent thereto.
DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED
1. Discharge by reason of bankruptcy
2. Discharge of a party not given due notice of dishonor
3. Discharge by the statute of limitations
VALID TENDER OF PAYMENT
If D an indorser validly tenders payment and F unjustifiably
refuses to do accept, D is discharged
Tender of payment: act by which one produces and offers to a
person holding a claim or demand against him the amount of
money which he considers and admits to be due, in satisfaction
of such claim or demand without any stipulation or condition
RELEASE OF PRINCIPAL DEBTOR
If the holder F discharges A maker, the parties secondarily
liable, B, C, D, E are also discharged, as this discharges the
instrument and two, it deprives them of their right of recourse
against A maker.
But if on releasing A, F reserves his right of recourse against
the indorsers, then they are not discharged. The effect of such
reservation is the implied reservation of their right of recourse
against A. In other words, while the holder cannot hold A liable,
2
he can hold B, C, D, and E liable, but they in turn can hold A
liable should any of them be made to pay F. This reservation of
the right of recourse cannot be implied from acts and conduct
but must be express.
RELEASE MUST BE ACT OF HOLDER
RELEASE MUST BE FOR VALUE
EFFECT OF RELEASE ON ACCOMMODATION MAKER OR
ACCEPTOR
General rule is that he is not discharged by the holders
release of the principal debtor even if the release be made with
knowledge or true relation of the parties and, conversely, the
release of the accommodation maker or acceptor doesnt
discharge the principal debtor through the latter occupies the
position of a party secondarily liable on the instrument
EXTENSION OF TIME
If the holder agrees to extend the time of payment, the
indorsers are discharged
However, where the extension of time is consented to by the
party secondarily liable, he is not discharged. Also, where the
holder expressly reserves his right of recourse against the party
secondarily liable, the latter is not discharged.
1. It must be a binding contract, supported by valuable
consideration and for a definite period
2. It must be made with the principal debtor and not with a third
party
Sec. 121. Right of party who discharges instrument. -
Where the instrument is paid by a party secondarily liable
thereon, it is not discharged; but the party so paying it is
remitted to his former rights as regard all prior parties, and
he may strike out his own and all subsequent
indorsements and against negotiate the instrument,
except:
(a) Where it is payable to the order of a third person and
has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and
has been paid by the party accommodated.
ILLUSTRATION OF SECTION 121
A is the drawer of the bill addressed to X, drawee, payable to
the order of B.
B C D E F
Suppose D pays the bill. What are the effects?
o The first effect: instrument is not discharged but it discharges
D.
o Second effect: D is remitted to his former rights against
parties prior to him, such as A, B and C. If D was formerly a
holder in due course, even if at the time of payment he had
already notice of defects of title, he can enforce his rights
against any of them free from defenses, as he is remitted to his
former rights. But it is a well-known rule of law that if the original
payee of a note unenforceable for lack of consideration
repurchases the instrument after transferring it to a holder in
due course, the paper again becomes subject in the payees
hands to the same defenses to which it would have been
2
 3

subject if the paper had never passed through the hands of a Signifies not only the drawing of criss-cross lines but also
holder in due course. tearing, obliterations, erasures or burning

o Third effect: D can strike out his indorsement and the It may be made by any other means by which the intention to
subsequent indorsements of E and F cancel the instrument may be evident

o Fourth effect: D can renegotiate the instrument WHEN CANCELLATION IS INOPERATIVE

EXCEPTIONS TO RIGHT TO RENEGOTIATE 1. When made unintentionally

2. 2. When made under mistake
1. If instead of D, it is A drawer who pays and as the bill is 3. 3. When made without the authority of the holder
payable to the order of a third person, B, A can no longer
negotiate the instrument BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS
THAT THE CANCELLATION IS INOPERATIVE
2. Or if B payee is an accommodated party, and B pays, he
cannot negotiate the bill, as B is the ultimate party to pay it, and
he doesnt have a right of recourse against either X drawee or
A drawer

Sec. 122. Renunciation by holder. - The holder may expressly

renounce his rights against any party to the instrument before,
at, or after its maturity. An absolute and unconditional
renunciation of his rights against the principal debtor made at or
after the maturity of the instrument discharges the instrument.
But a renunciation does not affect the rights of a holder in due
course without notice. A renunciation must be in writing unless
the instrument is delivered up to the person primarily liable
thereon.

APPLICATION OF SECTION 122

1. Applies only to renunciation by the unilateral act of the holder

without consideration and in cases where the instrument is not
delivered up to the person intended to be released

2. Renunciationact of surrendering a right or claim without

recompense but it can be applied with equal propriety to the
relinquishing of a demand upon an agreement supported by a
consideration

FORM OF RENUNCIATION

It must be in writing and must be express

TIME FOR MAKING RENUNCIATION

1. Before maturity
2. At maturity
3. After maturity

WHEN RENUNCIATION DISCHARGES INSTRUMENT

1. Renunciation discharges the instrument when it is absolute

and unconditional

2. It is made in favor of the person primarily liable 3. It is made

at or after maturity

Sec. 123. Cancellation; unintentional; burden of proof. - A

cancellation made unintentionally or under a mistake or
without the authority of the holder, is inoperative but where
an instrument or any signature thereon appears to have
been cancelled, the burden of proof lies on the party who
alleges that the cancellation was made unintentionally or
under a mistake or without authority.

MEANING OF CANCELLATION

3
 4

CHECKS

Sec. 185. Check, defined. - A check is a bill of exchange

drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a check.

CHECK, DEFINED

Bill of exchange drawn on a bank payable on demand

CHECK DISTINGUISHED FROM A PROMISSORY NOTE;

USED AS SUBSTITUTE FOR MONEY; EFFECT OF
WORTHLESS CHECKS ON TRADE CIRCLES AND BANKING
COMMUNITY

A check is not a mere undertaking to pay an amount of

money

Element of assurance or certainity that the instrument will be

paid upon presentation

ISSUING CHECK WITHOUT FUNDS AS ESTAFA

Issuing a check without sufficient funds in the drawee bank

constitutes estafa if it is done as a means of obtaining money
and merchandise but not if the check is given for a pre-existing
debt

BP 22: BOUNCING CHECKS LAW ELEMENTS OF OFFENSE

DEFINED IN THE FIRST PARAGRAPH OF SECTION 1:

1. That a person makes or draws and issues any check.

2. That the check is made or drawn and issued to apply on

account or for value.

3. That the person who makes or draws and issues the check
knows at the time of issue that he does not have sufficient
funds

4. In or credit with the drawee bank for the payment of such

check in full upon its presentment.

5. That the check is subsequently dishonored by the drawee

bank for insufficiency of funds or credit, or would have been
dishonored for the same reason had not the drawee, without
any valid reason, ordered the bank to stop payment.

NOTE: Failure to make good within 5 banking days prima facie

evidence of knowledge of lack and insufficiency

ELEMENTS OF THE OFFENSE DEFINED IN THE SECOND

PARAGRAPH OF SECTION 1: BP 22

1. That a person has sufficient funds in or credit with the

drawee bank when he makes or draws and issues a check.

2. That he fails to keep sufficient funds or to maintain a credit to

cover the full amount of the check if presented within

3. A period of 90 days from the date appearing thereon.

4. That the check is dishonored by the drawee bank.

NOTE: Failure to make good within 5 banking days prima facie

evididence of knowledge of lack and insufficiency

It 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
presentment to the bank

4

BP 22 IS CONSTITUTIONAL; NOT VIOLATIVE OF
PROHIBITION AGAINST IMPRISONMENT FOR DEBT,
FREEDOM OF CONTRACT; EQUAL PROTECTION OF LAW,
PROHIBITION AGAINST UNDUE DELEGATION OF POWER;
AND PROHIBITION ON AMENDMENTS ON THIRD READING
ISSUING CHECKS WITHOUT OR WITH INSUFFICIENT
FUNDS UNDER BP22
1. Issuing a check with knowledge of insufficiency of funds to
pay for the check, and the check is subsequently dishonored by
the drawer bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment
2. Issuing a check with sufficient funds or credit to pay for the
same, but with failure to keep sufficient funds or maintain a
credit to cover a full amount of the check if presented within 90
days from the date appearing thereon, for which reason the
check is dishonored
ELEMENTS OF THE OFFENSE OF ISSUING BOUNCING
CHECKS 1. The making, drawing and issuance of any check to
apply to account or for value
2. The maker, drawer, or issuer knows at the time of issue that
he doesnt have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment
3. The check is subsequently dishonored by the drawee bank
for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment
ISSUANCE OF BUM CHECKS GIVE RISE TO PRIMA FACIE
PRESUMPTION OF KNOWLEDGE Gravamen of the offense
under BP22 is the act of making and issuing a worthless check
or a check that is dishonored upon its presentment for payment
The law made the mere act of issuing a bum check a malum
prohibitum
BP22 PENALIZES ACT OF MAKING OR DRAWING AND
ISSUANCE OF BOUNCING CHECKS, NOT ONLY DISHONOR
The law penalizes the act or making or drawing and issuance
of a bouncing check and not only the fact of dishonor
Where the bouncing check was issued before the effectivity
of BP22, but dishonored after such effectivity, the accused who
issued the bouncing check didnt commit a violation thereof as
there was no law that was violated
KNOWLEDGE OF MAKER OR DRAWER OF CHECK OF
INSUFFICIENCY OF FUNDS ESSENTIAL ELEMENT OF
OFFENSE
FILING OF ACTION TO ANNUL DEED OF SALE ON WHICH
BOUNCING CHECK WAS ISSUED, NOT A PREJUDICIAL
QUESTION
IT IS NOT A DEFENSE THAT THE CHECK WAS ISSUED TO
GUARANTEE OR SECURE PAYMENT OF OBLIGATION
FOREIGN CHECKS ARE COVERED BY BP22 ACCUSED
MAY BE CONVICTED OF BOTH BP22 AND ESTAFA
AS ELEMENT OF VIOLATION OF BP22, KNOWLEDGE OF
INSUFFICIENCY OF FUNDS IS CONTINUING EVENTUALITY
FROM ISSUANCE OF DISHONOR
VIOLATION OF BOUNCING CHECKS LAW IS TRANSITORY
AND CONTINUING CRIME AND ITS VENUE IS ANY OF
PLACES WHERE IN PART COMMITTED
5
IS ISSUANCE OF CHECK FOR PREEXISTING DEBT
DEFENSE UNDER BP22? Under the cases, the issuance of
a check without or with insufficient funds is not estafa where it
is issued for a preexisting debt. But would the issuance of such
check be a defense under BP22?
Section 1 of said law in making the drawing or issuance of a
check
under the circumstances stated in the law of a crime, uses the
words to apply for account or for value
Accountto refer to a claim or demand growing out of the
sale of goods, performance on services and the like; preexisting
debt
JURISDICTION ON BOUNCING CHECKS LAW VIOLATION IS
DETERMINED BY ALLEGATIONS IN INFORMATION, PLACE
OF ISSUANCE OF CHECKS
ELEMENTS OF ESTAFA BY POSTDATING A CHECK OR
ISSUING A CHECK IN PAYMENT OF AN OBLIGATION 1.
That the offender postdated a check, or issued a check in
payment of an obligation. 2. That such postdating or issuing a
check was done when the offender had no funds in the bank or
his funds deposited therein were not sufficient to cover the
amount of the check.
WHEN POSTDATING CHECK IS NOT ESTAFA 1. Postdating
a check or issuing it for payment of an obligation, the offender
knowing that at the time he had no funds in the bank, or the
funds deposited by him in the bank werent sufficient to cover
the amount of the check, and without informing the payee of
such circumstances isnt a crime in itself as estafa
2. However, under BP22, such issuance of a check would be a
crime, where subsequently, the check is dishonored for
insufficiency of fund or credit, or would have been dishonored
for the same reason had not the drawer, without any valid
reason ordered the bank to stop payment
3. If the payee was informed that the check wasnt covered by
adequate funds and it is expected that such funds would be
available when the check became due, the drawer isnt guilty of
bad faith in issuing it. Where a person issued a post dated
check without funds to cover it and informs the payee of that
fact, he isnt guilty of estafa because there is no deceit
4. Accused issuing unfunded check but with OD or DAUD
privilege not guilty of fraudulent intent
DRAWING OF A CHECK WITH INSUFFICIENT FUNDS ISNT
FALSIFICATION
WHEN POSTDATING CHECK IS A CRIME
The payee or the person receving the check must be
defrauded by the act of the offender
To defraud is to deprive of some right, interest, or property by
a deceitful device
DISTINCTIONS BETWEEN ESTAFA CONSISTING OF
ISSUING CHECKS WITHOUT FUNDS AND VIOLATION OF
BP22
ESTAFA BP 22
Deceit and damage are Deceit and damage are not
essential elements of the essential elements of the
crime crime
Mala in se Mala prohibitum
5

THEFT OF CHECKS Checks are personal property and may
be subject to theft even when they are not indorsed
SPECIAL TYPES OF CHECKS 1. Cashiers checkone drawn
by the cashier of a bank in the name of the bank against the
bank itself payable to a third person or order
2. Managers checkcheck drawn by the manager of a bank in
the name of the bank against the bank itself payable to a third
person
3. Memorandum checkcheck on which is written the word
memorandum signifying that the drawer engages to pay the
bona fide holder absolutely and not upon a condition to pay
upon presentment or non-payment
4. Certified checksa check on which the drawee bank has
written an agreement whereby it undertakes to pay the check at
any future time when presented for payment, such as, by
stamping on the check the word certified and underneath it is
written the signature of the cashier
5. Crossed checks
HOW CROSSING OF CHECK IS DONE
Usually done by drawing two parallel lines
transversally on the face of the check
A check may be crossed specially or generally
CROSSING SPECIALLY
A check is crossed specially when the name of a
particular banker or a company is written between
parallel lines drawn transversally on the face of the
check
Check #1234
PNB
Phil Trust Co.
Manila, Philippines
September 24, 2007
Pay to B or order P1000 only.
Sgd A.
CROSSING GENERALLY
A check is crossed generally when only the words And
company are written between the parallel lines, or when
nothing is written at all between the parallel lines
In this case, payment must be made through the intervention
of any company which is duly authorized.
Otherwise, the payment will be not valid.
In actual practice, the holder of a crossed check merely
deposits it for collection with the bank indicated between the
parallel lines or with any bank where he keeps an account in
the case of a check crossed generally
Check #1234
PNB
Phil Trust Co.
Manila, Philippines
September 24, 2007
Pay to B or order P1000 only.
Sgd A.
UNDER CROSSED CHECK, THE PAYEE HAS DUTY TO
ASCERTAIN HOLDERS TITLE TO CHECKS
6
The SC recognizes the practice that a check with two parallel
lines in the upper left hand corner means that it could only be
deposited and may not be converted to cash
Such circumstances should put the payee into inquiry and
upon him devolves the duty to ascertain the holders title to the
check or the nature of his possession
Failing in this respect, the payee is declared guilty of gross
negligence amounting to legal absence of good faith and as
such the consensus of authority is to the effect that the holder
of the check isnt holder in good faith
The NIL doesnt provide that a holder isnt a holder in due
course may not in any case recover on the instrument if the
drawee if the latter has no valid excuse for refusing payment
DRAWEE SHOULDNT ENCASH A CROSSED CHECK BUT
MERELY ACCEPT THE SAME FOR DEPOSIT
Under usual practice, crossing a check is done by placing
two parallel lines diagonally on the left top portion of the check
The crossing may be special wherein between two 2 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 2 parallel diagonal lines are written the words And
Co. or none at all as in the case at bar, in which case the
drawee shouldnt encash the same but merely accept the same
for deposit
WHERE OTHER THAN PAYEE OF CROSSED CHECKS
PRESENTED IT FOR PAYMENT, THERE IS NO PROPER
PRESENTMENT AND DRAWER IS NOT LIABLE THEREON
ADVANTAGES OF CROSSING A CHECK
It is good precaution when it is to be forwarded by mail or
when it is entrusted to an agent and the drawer wants to be
sure that it will be paid to the rightful owner
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.
WHEN CHECK MUST BE PRESENTED FOR PAYMENT
A check must be presented within a reasonable time after its
issue
The whole theory and use of a check points to its immediate
payability A depositor places his money with his bank or
banker; where it is subject at any time to his order; and by his
check or order, he desires to appropriate so much of it to
another person, and the bank or banker, in consideration of its
temporary use of the money, agrees to pay it in whole, or in
parcels, to the depositors order when demanded
But he doesnt agree to contract to pay at a future day by
acceptance and the depositor cannot require it
Although under Section 185, a check is a bill of exchange
payable on demand, it is intended for immediate use and not to
circulate as a promissory note. Therefore, the transfer of a
check to successive holders, where it is drawn and delivered in
the place where the drawee bank is located, doesnt extend the
time for presentment. If the check isnt delivered on one day
and isnt presented before the close of banking hours the next
6

business day, the drawer is discharged to the extent of any loss
suffered from the failure to present.
REASONABLE TIME
Did the payee employ such diligence as a prudent man
exercises his own affairs?
The payees failure to present a check to the drawee bank
and who didnt present the check for one week after its receipt,
was held to have delayed presentment for an unreasonable
time as a matter of law
FAILURE TO PRESENT ON TIME DOESNT TOTALLY WIPE
OUT ALL LIABILITY
WHEN DELAY IS EXCUSED Delay in making presentment
for payment is excused when the delay is caused by
circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence.
When the cause of delay ceases to operate, presentment
must be made with reasonable diligence.
STALE CHECK
One which isnt presented for payment within reasonable
time after its issue
EFFECT OF DELAY ON LIABILITY OF DRAWER
When a check isnt presented for payment within a
reasonable time after its issue, the drawer is discharged but
only to the extent of the loss caused by the delay
Hence, if no loss or injury is shown, the drawer is not
discharged The only injury which would be sustained by the
drawer in case
presentment wasnt made within a reasonable time would be
caused by the failure of the bank subsequent to the delivery
and prior to the presentment of the check
EFFECT OF FAILURE TO GIVE NOTICE TO DRAWER
Where the check is dishonored by non-payment and the
drawer isnt given notice of dishonor, the drawer is totally
discharged from liability on the instrument
But the drawer may be held liable by the payee on the basis
of the original consideration between him and said payee
HOLDERS OF STALE CHECKS
But it is clear that the maturity of the check for the purpose of
presentment for payment and of dishonor in order to bind
parties to it, is not identical with the maturity which will charge
subsequent holders with notice of defect of title or infirmities in
the instrument
In applying the rule, the courts are disposed to be governed
rather by the circumstances under which the plaintiff received
the check than by the precise age of the instrumentthat is,
the good or bad faith exercised the prime consideration. The
result is that the plaintiff has been treated as a holder in due
course of checks transferred several months after their issue
EFFECT OF DELAY AS TO INDORSERS An unreasonable
delay in the presentment of a check for payment will discharge
the indorsers thereon, whether or not he is injured by the delay
as it is presumed that he is prejudiced
Exception: when there is affirmative proof that the indorsers
knew that there was delay in presentment
7
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.
CERTIFICATION OF CHECK
A certification is an agreement whereby the bank against
whom a check is drawn, undertakes to pay it at any future time
when presented for payment
But a bank is not obligated to the depositor to certify checks
And the drawee is not liable to the holder for refusal of the
bank to certify the check
The refusal of the bank doesnt dispense with the
requirement of presentment for payment since a check is of
right presentable only for payment at the bank on which it is
drawn
FORM OF CERTIFICATION
No particular form is required but it must be in writing
The usual method is by stamping on the check the word
certified and underneath it the signature of the cashier, or by
writing upon the check the word good with the date of
certification and signature of the officer of the bank having the
express or implied authority to certify checks, has been held to
be a sufficient certification
The letters OK with the initials of the cashier of a bank
doesnt constitute a sufficient certification under modern
banking practice
EFFECT OF CERTIFICATION
1. Equivalent to acceptance and is the operative act that makes
the drawee bank liable
2. It operates as an assignment of the funds of the drawer in
the hands of the drawee bank
3. If obtained by the holder, it discharges the persons
secondarily liable
CERTIFICATION EQUIVALENT TO ACCEPTANCE
Certification is equivalent to acceptance in the drawee bank
is bound on the instrument upon certification
And it is immaterial to such liability in favor of a holder in due
course whether the drawer had funds or not in the bank or the
drawer was indebted to the bank for more than the amount of
the check
The certifying bank has all the liabilities of an acceptor under
Section 62
IMPLICATION OF CERTIFICATION FURTHER EXPLAINED
The bank virtually says that the check is good and we have
the mo0ney of the drawer here ready to pay it. We will pay it
now if you will receive it. The holder says no, I will not take the
money; you may now certify the check and retain the money for
me until this check is presented. The law will not permit a
check, when due, to be thus presented, and the money to be
left with the bank for the accommodation of the holder without
discharging the drawer. The money being due and the check
presented, it is his fault if the holder declines to receive the
payment, and for his own convenience has the money
appropriated to that check subject to its future presentment at
any time within the statute of limitations.
7

FUNCTIONS OF CERTIFIED CHECKS
Although a check doesnt call for acceptance and the holder
can present it only for payment, the certification of checks is a
means in constant and extensive use in the business of
banking and its effects and consequences are regulated by the
law merchant. Checks drawn against banks, thus marked and
certified, enter largely into the commercial and financial
transactions of the country; they pass from hand to hand, in the
payment of balances from one house and one bank to another.
In the great commercial centers, they make up no
inconsiderable portion of the circulation and thus perform a
useful, valuable and an almost indispensable office
PURPOSE OF PROCURING CHECKS TO BE CERTIFIED
To impart strength and credit to the paper by
acknowledgment from the certifying bank that the drawer has
funds therein sufficient to cover the check and securing the
engagement of the bank that the check will be paid upon
presentation
When a check is certified, it ceases to possess the character,
or to perform its functions, of a check, and represents so much
money on deposit, payable to the holder on demand.
The check becomes a basis for credit and an easy mode of
passing money from hand to hadn and answers the purposes of
money
PAYMENT NEITHER INCLUDES NOR IMPLIES
ACCEPTANCE Acceptance and payment are entirely
different. If the drawee accepts the paper after seeing it, and
then permits it to go into circulation as genuine, on all the
principles of estoppel, he ought to be prevented from setting up
forgery to defeat liability to one who has taken the paper on the
faith of the acceptance or certification
On the other hand, mere payment of the paper at the
termination of its course doesnt act as an act of estoppel
Payment is the final act which extinguishes a bill
Acceptance is the promise to pay in the future and continues
the life of the bill
RIGHT OF THE HOLDER TO SUE DRAWER WHERE CHECK
NOT CERTIFIED
The drawer of a check certifies that it will be paid on
presentment but not that it will be certified
This is the theory on which the law discharging the drawer
and indorsers upon certification is based
Certification is different from acceptance in that the refusal of
the drawee bank to certify doesnt amount to a dishonor of the
check
There is no need for a notice of non-certification and the
check must still be presented for payment
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.
EFFECT WHERE HOLDER OBTAINS CERTIFICATION
When the certification is obtained by the holder, the drawer
and the indorsers are discharged
8
The certification has the same effect as if the holder has
drawn the money redeposited it and taken a certificate of
deposit for it
Only the indorsers at the time of the certification are
discharged
REASON FOR THE RULE
The moment that the check is certified, the funds ceased to
exist to be under the control of the original depositrors and pass
under the control of the person who procures the certification of
the check drawn in his favor
EFFECT WHERE CERTIFICATION OBTAINED BY OTHERS
Where the certification is obtained by the drawer, even when
the drawer procures the certification at the instance of the
payee
Where the certification is obtained by a person who is neither
the holder nor drawer
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.
CERTIFICATION OPERATES AS ASSIGNMENT OF FUNDS
When the holder procures the check to be certified, the check
operates as an assignment of a part of the funds to the credit of
the drawer with the bank
DURATION OF TRANSFER OF FUND
As stated, Under banking laws and practices, by the
certification, the funds represented by the check were
transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter became the
depositor of the bank, with rights and duties of one in such
relation. But the transfer of the corresponding funds from the
credit of the depositor to that of the payee had to be co-
extensive with the life of the checks, which in this case was 90
days. If the checks were not presented for payment within that
period they became invalid and the funds were automatically
restored to the credit of the drawer though not as a current
deposit but as special deposit.
UNCERTIFIED CHECK IS NOT AN ASSIGNMENT OF FUNDS
A check of itself is not an assignment of the funds of the
drawer in the bank
A general deposit in the bank is so much money to the
depositors credit. It is a debt to him by the bank, payable on
demand to his order, not property capable of identification and
specific appropriation. A check drawn upon the bank in usual
form, not accepted or certified by its cashier to be good, doesnt
constitute transfer of any money to the credit of the holder.
countermanded and payment forbidden by the drawer at any
time before it is actually cashed. It creates no lien on the money
which the holder can enforce against the bank. It doesnt of
itself operate as an equitable assignment.
DRAWEE BANK NOT LIABLE TO HOLDER ON CHECK
UNLESS ACCEPTED OR CERTIFIED
Before acceptance or certification, the bank isnt liable and
the holder has no right to sue the drawee bank on the check
On this question, we conclude that the general rule is that an
action cannot be maintained by the payee of the check against
8
 9

the bank on which it is drawn, unless the check has been WHEN STOPPING PAYMENT CONSTITUTES A CRIME
certified or accepted by the bank in compliance with the statute,
even though at the time the check is that an action cannot be It would constitute the crime of estafa where the accused
maintained by the payee of the drawer of the check out of issues a check and receives money, not goods, for them to the
which the check is legally payable; and that the payment of the offended party, and where at the time the accused has received
check by the bank on which it is drawn, even though paid on money for the check from the offended party, he has the
the unauthorized indorsement of the name of the holder; intention of stopping payment on it.
doesnt constitute as certification thereof, neither is it an
acceptance thereof; and without acceptance or certification, as
provided by statute, there is no privity of contract between the
drawee bank and the payee, or the holder of the check. Neither
is there assignment of the funds where the check isnt drawn on
a particular fund, or doesnt show on its face that it is an
assignment of a particular fund.

SUMMARY OF RIGHTS AND LIABILITIES OF PARTIES 1.

The holder has no action against it as a check is not in itself an
assignment of funds of the drawer in the hands of the drawee
bank, and the drawee bank isnt liable on the check until it has
accepted or certified it

2. Neither has the holder a right of action against the drawer

where the drawee bank refuses to accept or certify the check
but he has a right of action against the drawer where the
drawee bank refuses to pay

3. And while the holder has no right of action against the

drawee bank which refuses to pay, accept or certify the check,
the drawer has a right of action against the drawee bank so
refusing. Such right of action, however, isnt based on the
check drawn but on the original contract of deposit between
them

DUTY OF DEPOSITOR TO BANK

Where a drawer of a check has prepared his check so

negligently that it can be altered easily without giving the
instrument a suspicious appearance and alterations are
afterwards made, he cannot blame anyone but himself and in
such case, he cannot hold the bank liable for the consequences
of his own negligence in the respect

But negligence of depositor in drawing a check will not

excuse the paying bank unless it is misled by such negligent
act, and if the drawer of a check is first in fault and if his
negligence contributes directly to its wrongful and fraudulent
appropriation, he isnt entitled to recover

DUTY OF DEPOSITOR WHERE PASSBOOK RETURNED TO

HIM

It is his duty to examine such checks within a reasonable

time and if they disclose forgeries or alterations, to report them
to the bank, dispute the correctness of payments thereafter
made by it on similar checks.

This rule assumes that the bank itself hasnt been guilty of
negligence in making the payment for when, by the exercise of
proper case, it could have discovered the alteration of forgery, it
must bear the loss notwithstanding that the depositor failed in
his duty to examine the accounts

STOPPING PAYMENT

As a check is itself doesnt operate as an assignment of

funds to the credit of the drawer, the latter may countermand
payment before its acceptance or certification.

The order to stop payment must be communicated to the

bank before the check to which it refers has been paid; and in
the absence of this rule of the bank that stop orders must be in
writing, a verbal notice is sufficient.