Can we compel a creditor to accept payment by check?

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Let us say you borrowed money from someone else.

On the date set for its payment, you offered a check instead of cash.

Because the creditor prefers to be paid in cash, he right away refused to accept the check.

And so you compelled him to accept it.

When compelled to accept payment by check

But can we compel a creditor to accept payment by check? The answer is of course a big NO.

Why? Because the law requires that debts in money have to be paid in the currency stipulated.

But what if it is not possible to deliver such currency, how should payment be made then?

By law, it should be in the currency which is legal tender in the Philippines.

This holds true if there is no currency stipulated.

Illustration

For instance, if you borrowed P5,000 and agreed to pay it in US Dollars, you have to pay in such currency.

But if it is not possible to deliver such currency, then payment should be made in Philippine Peso.

This is also true if there is no agreement to make payment in a foreign currency.

Legal tender defined

In a textbook, legal tender is defined as that currency which if offered by the debtor in the right amount, the creditor must accept in payment of a debt in money.

Legal tender in the Philippines

The Bangko Sentral ng Pilipinas (BSP) has by law the sole power and authority to issue currency within the Philippines.

By currency, it means all notes and coins issued or circulating in accordance with The New Central Bank Act.

And all notes and coins issued by BSP are considered legal tender for all debts in the Philippines.

BSP Circular No. 537, Series of 2006

The legal tender power of notes issued by BSP has no limits.

But it is different for coins.

In a circular, BSP limited the legal tender power of 1-piso, 5-piso and 10-piso coins up to P1,000 only.

While it is only up to P100 for 1-sentimo, 5-sentimo, 10-sentimo and 25-sentimo coins.

Checks are not legal tender

In several decided cases, the Supreme Court said that checks are not legal tender.

For this reason, the creditor may validly refuse payment by check, whether it be a manager’s, cashier’s, personal, or any other check.

This is also clear in law.

When payment by check accepted voluntarily

Of course, the creditor may accept payment by check voluntarily.

If this takes place, will the debt be considered paid the moment he receives the check? NO.

Why? Because the delivery of checks will by law produce the effect of payment only in any of the following cases:

(a)       When they have been cashed;

(b)       When they have been cleared and credited to the account of the creditor; and,

(c)        When they have been impaired through the fault of the creditor.

But what happens in the meantime? The law says the action derived from the original obligation shall be held in abeyance.

This means the right of the creditor to bring an action for the payment of the debt is suspended in the intervening period and can only do so when the check is dishonored.

[References: Article 1249 of the Civil Code of the Philippines (RA 386), The Law on Obligations and Contracts (2014) by Hector S. De Leon and Hector M. De Leon, Jr., Norberto Tibajia, Jr. and Carmen Tibajia vs. The Honorable Court of Appeals and Eden Tan (G.R. No. 100290, June 4, 1993), Towne & City Development Corporation vs. Court of Appeals, et. al. (G.R. No. 135043, July 14, 2004), Sections 48-60 of The New Central Bank Act (RA 7653), BSP Circular No. 537, Series of 2006, BSP Circular No. 829, series of 2014, bsp.gov.ph, quizlet.com, and eumed.net]

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Is the mere inclusion as a shareholder in the General Information Sheet (GIS) of a corporation sufficient to prove that one is a shareholder?

GISI once spoke with someone who claims to be a shareholder of a certain corporation.

To prove it to me, he presented a GIS that was submitted to the Securities and Exchange Commission in which he was named as a shareholder.

But to be sure that he is really a shareholder, I asked him to present additional documents to me.

Instead of complying, he merely said that the GIS is already sufficient. Of course, I disagreed.

But to avoid an argument from ensuing, I calmly explained my reasons to him.

This brings us now to the question on whether the mere inclusion as a shareholder in the GIS of a corporation is sufficient to prove that one is a shareholder.

The Supreme Court in the case of David C. Lao and Jose C. Lao vs. Dionisio C. Lao [G.R. No. 170585, October 6, 2008] gave the answer to this question.

Speaking through Justice Ruben T. Reyes, the Supreme Court in that case said that the GIS alone does not conclusively prove that one is a shareholder of a corporation.

Because the information in the GIS, it explained, will still have to be correlated with the corporate books.

It added that between the GIS and the corporate books, it is the latter that is controlling.

Borrowing the words of the Court of Appeals, the Supreme Court also said that the mere inclusion in the GIS as shareholders and officers does not make one a shareholder of a corporation for this may have come to pass by mistake, expediency or negligence.

Payment of interest for the loan of money

Whenever I have no court hearings, I spend most of my time, except on weekends and holidays, in my law office, either researching or drafting legal documents.

Oftentimes, while in the office, clients would drop by to consult me about their legal problems.

But, as a matter of office procedure, before allowing clients to speak with me, the office secretary will first conduct a brief and quick interview about their identities and other personal circumstances (for new clients) and the legal problems they intend to consult with me.

She will then relay to me all the information she had gathered.  And I will initially evaluate the client’s legal problem.

She then instructs the client to proceed to my room. Once inside, I ask him to discuss in detail his legal problem.

And, if necessary, I ask some clarificatory questions. Once I figure out with certainty the client’s exact legal problem, this will now serve as my green light to start giving legal advice to him.

When it comes to legal problems which has something to do with the loan of money, the question that clients often ask, or consult with, me involves the payment of interest.

Particularly, if the client happens to be the lender, he would ask, “If I lend money to someone else, say a friend, can I collect interest, in addition to the principal amount loaned, for the use of my money?”

And, if he happens to be the borrower, he would ask, “If I borrow money from someone else, say a relative, can he demand payment of interest, in addition to the principal amount loaned, from me for the use of his money?”

Before I start giving legal advice, I would first throw back to the client two simple, yet very important, questions.

I ask the client, “Is there an agreement for the payment of interest?” And “Is the agreement in writing?”

If his answer to all those questions is a resounding “yes,” then, if he is the lender, he can collect interest, in addition to the principal amount loaned, for the use of his money.

And, if he is the borrower, the lender can demand payment of interest, in addition to the principal amount loaned, from him for the use of his money.

Otherwise, the only amount that may be legally demanded for payment would be the principal amount loaned.

This is in consonance with Article 1956 of the Civil Code of the Philippines, which provides: “No interest shall be due unless it has been expressly stipulated in writing.”

On Philippine bank deposit insurance (Part I)

If you are a depositor with an observant eye, you will surely see signs in your bank that say it is a member of the Philippine Deposit Insurance Corporation (PDIC).

These signs also say that deposits are insured with PDIC and that the maximum deposit insurance for each depositor is Five Hundred Thousand Pesos (PhP. 500,000.00).

Passbooks issued by banks to depositors also contain similar information.

This is evidently intended to make such information on bank deposit insurance readily available to all depositors for their guidance.

Other equally important information 

Of course, there are other equally important information on bank deposit insurance not found in either of those signs or passbooks that a depositor should also know.

Like, for instance, the determination of the insured deposit a depositor is entitled to recover from PDIC when the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) orders the closure of an insured bank.

Determination of the insured deposit 

How then do we determine the insured deposit? By adjusting the outstanding balance of each account maintained by a depositor in a closed insured bank.

The adjustment is made by updating the interests earned, deducting the withholding taxes due, adding together all the accounts maintained in the same right and capacity, and deducting all the unpaid loans and other obligations, if any.

But in no case shall the amount due to a depositor from PDIC for all the accounts maintained in the same right and capacity in a closed insured bank exceed the maximum deposit insurance of PhP. 500,000.00.

Illustration

Let us say, for instance, that a person by the name of Miguel Maykaya maintains in the same right and capacity three accounts with an insured bank known as Banco Mo.

And each account has PhP. 1,000,000.00 deposit.

If the Monetary Board of the BSP orders the closure of Banco Mo, how much is Miguel Maykaya entitled to recover from PDIC for all his three accounts?

Assuming that the remaining amount after making the adjustment on the outstanding balance of each account is PhP. 2,500,000.00, Miguel Maykaya is entitled to recover PhP. 500,000.00 only from PDIC.

And this is for all (not each) of his three accounts.

[References: RA 3591, as amended, PDIC website: http://www.pdic.gov.ph, and Usapang Pera: Mga Dapat Alamin-A PDIC Guidebook on Basic Banking & Financial Transactions (Launch Edition) by Efren LI. Cruz, RFP]

Bank deposits are loans

Although termed deposits, bank deposits, whether fixed, savings, or current, are really loans, with banks as borrowers and depositors as lenders.

Why? Because banks can use them and they earn interest.

And banks have no obligation to return the very money deposited.  All they have to do is to pay the same amount deposited plus the interest earned, if any.

But it is different when it comes to a true deposit.

Why? Because, unlike loans, the principal purpose of a true deposit is for the safekeeping and not the use of the thing deposited.

And, above all, the very thing deposited and not simply its equivalent must be returned upon demand.

[References: Titles XI (Loan) to XII (Deposit) of the Civil Code of the Philippines, Article 1980 of the Civil Code of the Philippines, Manuel M. Serrano vs. Central Bank of the Philippines, et. al., G.R. No. L-30511, February 14, 1980, Teofisto Guingona, Jr., et. al., vs. The City Fiscal of Manila, et. al., G.R. No. L-60033, April 4, 1984, Bank of the Philippine Islands vs. Hon. Court of Appeals, et. al., G.R. No. 104612, May 10, 1994, and Maclaring M. Lucman vs. Alimatar Malawi, et. al., G.R. No. 159794, December 19, 2006]

Bouncing checks

When a person issues a bouncing check, he may be held liable for two crimes: one, for violation of Batas Pambansa Blg. 22 (BP 22); and, two, for estafa through bouncing checks under the Revised Penal Code.

Also known as worthless, rubber, or bum check, a bouncing check is a check that has insufficient or no funds to cover the amount appearing on its face.

Although one may be convicted for both crimes without violating the constitutional prohibition on double jeopardy, a person held liable for violation of BP 22 is not necessarily liable for estafa through bouncing checks.

Because in estafa through bouncing checks, it is essential to show that the issuance of a bouncing check is the means used to obtain money or property. Mere issuance of a bouncing check is inadequate.

But a person held liable for estafa through bouncing checks is necessarily liable for violation of BP 22.

Because in BP 22, the mere issuance of a bouncing check is already the offense in itself.

[References: Batas Pambansa Blg. 22, Article 315, paragraph 2(d), of the Revised Penal Code, Peter Nierras vs. Hon. Auxencio C. Dacuycuy and Hon. Antonio S. Lopez, G.R. Nos. 59568-76, January 11, 1990, Roberto Cruz vs. Court of Appeals, People of the Philippines, G.R. No. 108738, June 17, 1994, Gemma Ilagan vs. People of the Philippines, G.R. No. 166873, April 27, 2007, Albert Cordero Sy vs. People of the Philippines, G.R. No. 168069, April 27, 2007, Jaime Tan vs. People of the Philippines, G.R. No. 168543, April 27, 2007, People of the Philippines vs. Elizabeth Cardenas, G.R. No. 178064, February 10, 2009, and Teodoro A. Reyes vs. Ettore Rossi, G.R. No. 159823, February 18, 2013]

On banks and checks: DAUD and DAIF, distinguished

There are several reasons why drawee banks dishonor checks upon presentment for payment. Among these reasons are DAUD and DAIF.

Between DAUD and DAIF, there are various significant distinctions that needs to be pointed out. And this is primarily for the benefit of those who, at one point or another, were issued, or were the ones who issued, checks, which were later on dishonored for the reasons of DAUD or DAIF.

DAUD, to begin with, is an acronym which stands for “Drawn Against Uncollected Deposits,” while DAIF refers to “Drawn Against Insufficient Funds.”

DAUD means that the account has, on its face, sufficient funds but not yet available to the drawer because the deposit, usually a check, had not yet been cleared.

DAIF, on the other hand, is a condition in which a depositor’s balance is inadequate for the bank to pay a check.

In other words, in the case of DAUD, the depositor has, on its face, sufficient funds in his account, although it is not available yet at the time the check was drawn, whereas in DAIF, the depositor lacks sufficient funds in his account to pay the check.

But the most notable distinction between these banking terms is that DAUD does not expose the drawer to possible prosecution for  the crime of Estafa, defined and penalized under the Revised Penal Code (Act No. 3815, as amended), and violation of Batas Pambansa Blg. 22 (BP 22), popularly known as the “Anti-Bouncing Checks Law.”

In stark contrast, DAIF subjects the depositor to liability for such offenses.

[Reference: Bank of the Philippine Islands v. Reynald R. Suarez, G.R. No. 167750, March 15, 2010]