Explain and provide the answers to the following questions:

1. Essential Characteristics of Checks

2. Checks vs. Bill of Exchange

3. What is Stale Check? Give the effects of delay in presenting the check?

4. Give the effects of Renunciation.

5. A bill of exchange on its face: “One (1) month after sight, pay to the order of Mr. R the amount of
Php 50,000.00, charged to the account of Mr. S. Signed, Mr. T.” Mr. S, the drawee, accepted the bill
upon presentment by writing on it the words “I shall pay Php 30,000.00 three (3) months after sight.”
May he accept under such terms, which varies the command in the bill of exchange? Explain.

6. X, drawee of a bill of exchange, wrote the words: “Accepted, with promise to make payment within
two (2) days. Signed, X.” The drawer questioned the acceptance as invalid. Is the acceptance valid?
Explain.

7. On 2 January 2008 Nilda drew a BPI check dated 2 January 2008 payable to the order of “Cash” in
the amount of P25,000 and delivered the same to her friend Andy in payment of a debt. While in
Andy’s possession, the check was stolen by Beth, who then delivered the check to Cindy on 2 June
2008 in order to pay her debt of P25,000. Andy promptly informed Nilda that the check was stolen.
When Cindy deposited the check, it was dishonored because of a stop payment order procured by
Nilda.

a. May Cindy enforce payment of the check as against Nilda? Explain.

b. Would your answer be the same if the check was delivered by Beth to Cindy on 2 August
2008? Explain.

8. Salazar with Calleja and Kallos procured from J.Y. Bros. 300 cavans of rice. As payment, Salazar
negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Timario with the assurance
that the check is good as cash. On that assurance, J.Y. Bros, parted with 300 cavans of rice to
Salazar. However, upon presentment, the check was dishonored due to “closed account.” Calleja,
Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check issued which bounced
due to insufficient funds. Despite demands, Salazar failed to settle the amount due to J.Y. Bros.,
charged Salazar and Timario with Estafa.

Salazar contends that the issuance of the Solid Bank check and the acceptance thereof by J.Y. Bros.,
in replacement of the dishonored Prudential Bank check, amounted to novation that discharged the
latter check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing
whatever the criminal responsibility, under Article 315 of the RPC, the drawer or indorser of the
Prudential Bank check would have incurred in the issuance thereof, and that a check is a contract
which is susceptible to a novation just like any other contract.

Is Salazar correct? Explain.

Note: Do not discuss the criminal liability of the party. Focus on novation and on the checks issued
thereof.

9. Xavier and Yankee are disputing over a property. To settle the dispute, they entered into a
compromise agreement by which they agreed to have the property in dispute be sold. Xavier bought
the property and delivered the manager’s check to Yankee. Yankee refused to accept the same hence
it was consigned with the court. Yankee later accepted the check and three years after acceptance,
he filed an action alleging that the check payment did not amount to legal tender and that he never
even encashedthe check. Is the contention of Yankee proper? Explain.

10. Juben issued to Bella two post-dated checks as security for pieces of jewelry to be sold. Bella
negotiated the check to Sarah. When Juben failed to sell the jewelry, he withdrew all his funds from
the drawee bank. After dishonor, Juben contends that the holder failed to give him notice of dishonor.
Is notice of dishonor necessary? Explain.

Certificate of deposit. — It is a written acknowledgment by a bank of the receipt of money received or

on deposit which the bank promises to pay to the depositor, or to him or his order, or to some other
person, or to him or his order, or to bearer, or to a specified person or bearer, on demand or on a fixed
date, often with interest. (a) A certificate of deposit creates the relation of debtor and creditor
between the bank and the depositor. It should not be confused with the deposit slip issued by the
bank when cash or checks are deposited in a checking account. A deposit slip is a mere receipt. (b) A
certificate of deposit (commonly called "CD") is negotiable only if drawn with all the essential elements
of a negotiable paper, (see Sec. 1.) Its negotiability allows it to be indorsed or sold to pay debts or to
serve as security (collateral) for a loan. It is not to be confused with savings deposit. It is most
commonly a time deposit of money with a bank. In the absence of a promise to pay, it is a mere
receipt. (c) Certificates of deposit are frequently used by banks to get deposits for longer periods of
time than regular savings deposits, for which they pay higher rate of interest. They resemble a check in
that the one expected to pay is always a bank. (d) The principles governing other types of bank
deposits are applicable to certificates of deposits, as sure the rules governing promissory notes when
they contain an unconditional promise to pay a sum certain of money absolutely. (Far East Bank and
Trust Co. vs. Querimit, 373 SCRA 665 [2002].)
Bond. — It is an evidence of indebtedness issued by a public or private corporation, promising to pay a
sum of money on a day certain in die future. Its negotiability is controlled by the same rules governing
promissory notes, (ibid.) It runs for a longer period of time than a promissory note and is issued for
debts of substantially larger amounts.1 Bonds are of two sorts: (a) registered bond or one payable only
to the person whose name appears on the face of the certificate and in the books of the company.
Hence, it is not negotiable. It is transferable by the registration of the transferee's name in the books
of the company; and (b) coupon bond or one to which are attached coupons which entitle the holder
to interest when due. These interest coupons may be detached and negotiated just like promissory
notes independent of the main instrument.
Bank note. — It is an instrument issued by a bank for circulation as money payable to bearer on
demand, (see 8 C.J. 42.)
Due bill. — It is a promissory note which shows on its face an acknowledgment by a person of his
indebtedness to another. The word "due" is usually used.
Mortgage note.—Two kinds are: the chattel mortgage note and the real estate mortgage note. As the
name implies, the first is secured by personal property and the second, by real property. In sale of a
house, for example, the note secured by mortgage on the property, is for the unpaid balance of the
purchase price. The security contract, known as a mortgage, most frequently provides that the
mortgage can be foreclosed if the note is not paid when it is due.
Title-retaining note. — This type is secured by a conditional sales contract which ordinarily provides
that the title to the goods shall remain in the payee's name until the note is paid in full. It is used to
secure the purchase price of goods.
Collateral note. — It is used when the maker pledges securities (shares of stocks, bonds, and other
personal property) to the payee to secure the payment of the amount of the note. The securities are
usually placed with the holder as collateral security. Banks also use a device called "signature note" for
short-term unsecured loans or loans made without collaterals.
Judgment note. — This is a note to which a power of attorney is added enabling the payee to take
judgment against
2. 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.
A check differs from an ordinary or regular bill of exchange in these particulars: (1) A check is always
drawn on a bank or banker, while an ordinary bill may or may not be drawn on a bank;
(2) A check is always payable on demand,
2 while an ordinary bill is either payable on demand or at a fixed or determinable future time
(3) A check is supposed to be drawn against a previous deposit of funds, while an ordinary bill need hot
be drawn against a deposit;
(4) A check need not be presented for acceptance (see Sec. 185.), while an ordinary bill is required to
be presented for acceptance in certain cases (Sec. 143.);
(5) A check is ordinarily intended for immediate payment, while an ordinary bill is for circulation as an
instrument of credit;
(6) The death of the drawer of a check with the knowledge of the bank revokes the authority of the
bank to pay (Glennan v. Rochester Trust Co., etc., 102 N.E. 537.), while the death of the drawer of an
ordinary bill does not revoke the authority of the drawee to pay;
(7) A check must be presented for payment within a reasonable time after its issue (Sec. 186.), while an
ordinary bill must be presented for payment within a reasonable time after its last negotiation (Sec.
171.);
(8) The drawer of a check not presented within a reasonable time after its issue is discharged from
liability thereon to the extent of the loss caused by the delay (Sec. 186.), while the drawer of an
ordinary bill is totally discharged (Sec. 70.); and
(9) When a check is accepted or certified, the drawer and indorsers are discharged from liability
thereon (Sec. 188.), while in an ordinary bill, they remain liable in spite of the acceptance, (see Sec.
84.)

3 It is one which has not been presented for payment within a reasonable time after its issue. It is
valueless and, therefore, should not be paid,

(1) In a case, a check, payable on demand, Which was long overdue by about 21/2 years, was
considered a stale check, (see Montinola vs. Phil. National Bank, 88 Phil. 178 [1951].) Current banking
practice presently regards as stale, checks outstanding for more than six (6) months or 180 days. Banks
will normally not pay such a check without consulting the depositor (drawer). However, the drawer is
not discharged by the mere delay in the presentation of the check for payment if he does not suffer
any loss from the delay, (see Sec. 186.) For a check to be dishonored upon presentment, on the one
hand, and to be stale for not being presented at all in time, on the other, are incompatible
developments that naturally have variant legal consequences. (Crystal vs. Court of Appeals, 71 SCRA
443 [1976]; see Wong vs. Court of Appeals, 351 SCRA 100 [2001].)
(2) A bank has no obligation to a customer having a checking account to pay a check, other than a
certified check, which is presented more than six (6) months after its date. Under the (U.S.) Uniform
Commercial Code, a bank may charge its customer's account for a payment made thereafter in good
faith. (Sec. 4-404 thereof.) Thus, a depositor should give instructions to his bank regarding uncashed
checks.

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5 Bond. — It is an evidence of indebtedness issued by a public or private corporation, promising to pay
a sum of money on a day certain in die future. Its negotiability is controlled by the same rules
governing promissory notes, (ibid.) It runs for a longer period of time than a promissory note and is
issued for debts of substantially larger amounts.1 Bonds are of two sorts: (a) registered bond or one
payable only to the person whose name appears on the face of the certificate and in the books of the
company. Hence, it is not negotiable. It is transferable by the registration of the transferee's name in
the books of the company; and (b) coupon bond or one to which are attached coupons which entitle
the holder to interest when due. These interest coupons may be detached and negotiated just like
promissory notes independent of the main instrument.