Who is liable if a check is issued from a closed account?

In the Philippines, negotiable instruments, such as checks, are governed by the Negotiable Instruments Law (Act No. 2031). The law outlines the rights and responsibilities of parties involved in the issuance, endorsement, and negotiation of these instruments. When a check is dishonored due to being drawn from a closed account, several legal implications arise, particularly regarding the liability of the parties involved.

Drawer's Liability

The drawer of a check is the person who issues the check. Under the Negotiable Instruments Law, the drawer has the primary obligation to ensure that sufficient funds are available in the account to cover the amount stated on the check. If a check is dishonored due to the account being closed, the drawer is liable for the amount of the check. Additionally, under Batas Pambansa Blg. 22, commonly known as the "Bouncing Checks Law," issuing a check from a closed account is a criminal offense. The drawer may face criminal charges, which can result in imprisonment or a fine.

Holder in Due Course

A holder in due course is a person who has obtained a negotiable instrument for value, in good faith, and without notice of any defects. If the check was transferred to a holder in due course before it was dishonored, the holder in due course has the right to seek payment from the drawer. The holder in due course is protected under the law and has the right to recover the full amount of the check from the drawer.

Endorser's Liability

An endorser is a person who signs the back of a check, transferring it to another party. By endorsing the check, the endorser guarantees that the check will be paid. If the check is dishonored, the endorser can also be held liable. The endorser may be required to pay the amount of the check to the holder, and subsequently, the endorser can seek reimbursement from the drawer.

Bank's Liability

In general, banks are not liable for checks drawn from closed accounts, as their responsibility is to honor checks that are properly funded. However, if a bank mistakenly honors a check from a closed account, it may be held liable for the amount of the check. The bank's liability is usually limited to cases where there has been a breach of its duty of care in handling the check.

Remedies for the Holder

When a check is dishonored, the holder has several remedies available:

Presentment for Payment: The holder must present the check for payment within a reasonable time. If the check is dishonored, the holder must notify the drawer and any endorsers.
Notice of Dishonor: The holder must give notice of dishonor to the drawer and endorsers to hold them liable. This notice must be given within a reasonable time after the dishonor.
Civil Action: The holder can file a civil lawsuit against the drawer and endorsers to recover the amount of the check.
Criminal Action: Under the Bouncing Checks Law, the holder can file a criminal complaint against the drawer for issuing a check without sufficient funds or from a closed account.

Conclusion

In the context of a dishonored check due to a closed account, the primary liability falls on the drawer, who issued the check. The holder in due course is protected and can seek payment from the drawer and endorsers. The legal framework in the Philippines provides clear guidelines for the rights and remedies of all parties involved, ensuring that the integrity of negotiable instruments is maintained.