by Atty. Oliver Cachapero, Jr.
I
assume most of us know that a check, although not a legal tender, produces the
effect of a legal tender when it is encashed. However, many still avoid dealing
with checks since it is far more complicated than dealing with cash. In fact,
for most of us, the act of filling out a check with necessary details alone
already requires great caution.
Most
of the time, the one who fills out the check misspells the name of the payee,
commits mistakes in writing the amount in words, or provides the wrong date.
Good thing one can correct an alteration or erasure on a check by
counter-signing it so as to indicate that the same is authorized hence negates
the existence of forgery or material alteration.
But
earlier this year, one of my clients was furious when he was narrating to me
that his check was not cleared by the bank simply because there was an erasure
in his name. He was then directed to ask for a replacement check from the
drawer. The problem with that, according to my client, was that the drawer (his
employer) is from Australia and it would be very difficult, if not impossible,
to ask for a replacement check.
As
his counsel, I went to the bank and inquired about the refusal to clear the
check. I was then told that the legal basis for the said refusal is Clearing
House Operating Memo (CHOM) No. 15-460 as amended by CHOM No. 15-460.A which
took effect on 4 January 2016. Said memo states that regardless of any
signature or initials that appear to indicate authorization, checks with
erasure, alteration, and/or deficiency will no longer be eligible or acceptable
for clearing.
The
purpose of this bold memo is to help shorten the processing of checks from
three days to one day. Likewise, it will help in the security measures of all
banks.
Said
erasures or alterations contemplate those in the date, name of the payee (whether
cash, holder, bearer or any name of person), amount in figures, amount in
words, signature of the drawer, account name, account number, check number, and
magnetic ink character recognition (MICR) characters. While deficiencies
contemplate the date, name of the payee, amount payable in figures, amount
payable in words, and signature of the drawer.
To
make it clear, this memo does not only refer to forgery or material alteration.
The concepts and consequences of these two are already extensively discussed in
Sections 23 and 124 of the Negotiable Instruments Law (NIL), respectively. Be
that as it may, this memo covers even the simplest erasure on a check, and as a
result, such check can no longer be cleared how minuscule the infraction is.
To
illustrate, if I am the payee of a check and the drawer wrote my name as
“Oliver Cachepero Jr” instead of
“Oliver Cachapero Jr”, banks would
refuse to clear it since my name is misspelled. The remedy then is to ask the
drawer to correct my name either by overwriting the letter “e” with “a” or erasing
it with the use of a correction tape then writing the correct letter
thereafter. In either way, require his counter-signature as proof of authorization
of such correction.
This
remedy cures the defect and the banks would clear the check without further
inquiry. But with the advent of CHOM No. 15-460, the check will no longer be
cleared despite utilizing the remedy abovementioned. We have here a very simple
case of misspelled name and not a case of forgery or material alteration. Yet
the only recourse is to ask the drawer to issue a replacement check.
Applying
the provisions of CHOM No. 15-460, it presupposes then that the check which was
issued before (the one with the misspelled name of the payee) is basically worthless
already as it can no longer be cleared. Be that as it may, the check is therefore
non-negotiable. Who would, in his right mind, accept a check which he knows
will not be cleared anyway?
But
check replacement can easily be resorted to, is it not? Or is it? What if the
drawer is impossible to reach in the meantime? What if the drawer, for some
reasons, refuses to issue a replacement? What if the drawer requires additional
undertakings before issuing a replacement?
Furthermore,
CHOM No. 15-460 likewise makes checks ineligible to be cleared if there is
omission on the date, name of the payee, amount, or signature of the drawer as
already discussed above.
Simply
put then, such erasures/alterations and omissions would invalidate a check and
necessarily make it non-negotiable. Now, let us set this straight – this CHOM
No. 15-460, in essence, violates the NIL. Let me explain why.
Section
1 of the NIL states that an instrument to be negotiable must conform to the
following requirements: (a) It must be in writing and signed by the maker or
drawer; (b) Must contain an unconditional promise or order to pay a sum certain
in money; (c) Must be payable on demand, or at a fixed or determinable future
time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated therein with reasonable
certainty. Nowhere in the said provision states that an instrument must be free
from erasures or alterations to be negotiable.
Likewise,
Section 6 of the NIL states that the validity and negotiable character of an
instrument are not affected by the fact that: (a) it is not dated; or (b) does
not specify the value given, or that any value had been given therefor. But
CHOM No. 15-460 requires otherwise. It has thereby rendered Section 13 and
Section 17 (c) useless as well, which both lay down the rules to be followed in
cases where an instrument is not dated.
But
then again, CHOM No. 15-460 has been in full effect starting early this year
and it has given payees/depositors and banks alike expedience and convenience
in dealing with checks, particularly in clearing them. It serves likewise as a
constant reminder that everyone should be more cautious in filling out checks
which improves one’s vigilance and diligence. But even if this memo turns out
to be more advantageous than detrimental to many, a violation is a violation. If
we uphold this memo just because of the convenience and advantage that it
brings, we are then setting a bad precedent at the expense of the sanctity of
our century-old law, the NIL that is.
Well
settled is the rule that an ordinance to be valid must not contravene an
existing statute. With more reason if it is just a memo issued by a
corporation.
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Atty. Cachapero is a practicing lawyer
and a lecturer at San Beda College where he teaches Negotiable Instruments Law.
For comments, you can email him at ocachaperojr@yahoo.com
Kudos!
ReplyDeleteThanks, Pañero :)
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