Rights and Remedies Under Philippine Law

This article explains how Philippine law treats post-dated checks (“PDCs”) given as collateral—when they may be deposited, what happens if they bounce, and the civil, criminal, and practical consequences for all parties involved.

1) The Legal Building Blocks

Negotiable Instruments Law (NIL, Act No. 2031).

A check is a bill of exchange drawn on a bank and payable on demand (Sec. 185).
Post-dating is allowed unless done for an illegal or fraudulent purpose (Sec. 12).
Presentment rules, negotiation/indorsement, holder in due course (HIDC) doctrine, and defenses are governed by the NIL (notably Secs. 28, 52–59, 70–89, 189–193).

Civil Code.

Checks are not legal tender; they discharge an obligation only upon encashment (Art. 1249). If the creditor impairs the check through fault (e.g., unjustified delay or wrongful handling), the obligation may be considered paid to the extent of the impairment.
General rules on obligations, breach, rescission, damages, and penalty clauses apply (Arts. 1170, 1191, 1226–1230).

B.P. Blg. 22 (Bouncing Checks Law).

Penalizes the making, drawing, and issuance of a check that is dishonored for insufficiency of funds or credit, or because of a stop-payment without valid cause.
Knowledge of insufficiency is presumed if, after notice of dishonor, the issuer fails to pay the amount or make arrangements within five (5) banking days.
Purpose is immaterial: whether the check was for payment, deposit, or as a guarantee/collateral, issuance of a worthless check that is later presented and dishonored can trigger liability.

Revised Penal Code—Estafa (Art. 315[2][d]).

May apply when a check is used as a deceitful device (e.g., to induce delivery of property) and dishonored; requires fraudulent intent (distinct from BP 22’s policy).

Banking practice and clearing.

As a matter of practice, banks do not pay a PDC before its date; they accept it for deposit on or after the date and route it to clearing.
A stale check (generally > 6 months from date) is typically refused by banks.

2) What Does “PDC as Collateral” Really Mean?

Parties often deliver PDCs as security for a loan, lease, sale on installments, or credit line. The check’s amount usually matches an installment or the total exposure.
A PDC given purely as collateral does not by itself constitute payment; it is a security device. The underlying contract determines when the holder may present or deposit the check (e.g., “upon default,” “on schedule regardless of default,” or “only after written demand”).
Because a PDC is negotiable, it can still be negotiated to others; but if it remains in the original payee’s hands, disputes tend to stay within immediate parties (where personal defenses like failure or absence of consideration can be raised under Sec. 28, NIL).

3) May the Holder Deposit a Collateral PDC?

A. Before the Check’s Date

No—as a rule, it will not be honored by the drawee bank before its date. Even attempting to deposit early can constitute breach of the collateral agreement if the contract restricts presentment timing.

B. On or After the Check’s Date

Yes, if the collateral agreement allows deposit either (i) on schedule (e.g., dated per installments) or (ii) upon default plus other conditions (like prior demand).
If the agreement conditions presentment on a default and no default has occurred, depositing the check can itself be a breach of contract—exposing the holder to damages and potential counterclaims.

C. After Default

Where the collateral clause says the PDC may be encashed upon default, the holder can present any matured PDC(s) that correspond to the unpaid obligation.
If the holder wants to accelerate and deposit all PDCs (e.g., declaring all installments due), there must be a clear acceleration clause or a legal basis under the Civil Code (Art. 1198 situations, express acceleration, or rescission with damages).

4) If the Check Is Dishonored (Bounces)

A. Civil Effects

The holder may sue either (1) on the instrument (NIL cause of action) or (2) on the underlying obligation (loan/lease/sale). These can be pleaded in the alternative (but double recovery is barred).
Damages, interest, and penalties follow the contract and the Civil Code. Penalty clauses are enforceable if not unconscionable.

B. Criminal Exposure: B.P. 22

Elements: issuance of a check; check is dishonored; issuer fails to pay or make arrangements within five banking days after notice.
Purpose does not matter: that a check was issued as collateral/guarantee is not a defense once it is actually presented and dishonored.
Good-faith defenses: timely funding within five banking days after notice; bank error; valid stop-payment for a legitimate reason (e.g., loss, theft, lack of delivery of goods), when accompanied by prompt tender of payment by other means. These are fact-sensitive.

C. Estafa (RPC)

Requires deceit at the time of issuance—e.g., knowingly using a worthless check to induce delivery. Not every bounce is estafa; intent and causal link must be proven.

5) Rights & Remedies by Role

A. Creditor / Holder of a Collateral PDC

You may:

Present the check on/after its date per the agreement (or upon default, if so provided).
Sue on the instrument (NIL) after dishonor and notice to liable parties (drawer, indorsers).
Sue on the underlying contract for unpaid principal, interest, penalties, and damages.
Pursue B.P. 22 if statutory requisites are met (after notice of dishonor and five-banking-day window).
Negotiate the check (with indorsement). If you become a HIDC, you take free of many defenses; but if the instrument itself shows it is post-dated and you had notice it was collateral, HIDC status can be contested in litigation.

You must:

Observe the contract (default, notices, acceleration, demand prerequisites).
Give prompt notice of dishonor to secondarily liable parties (NIL formalities), unless excused.
Keep evidence of delivery, agreement, default, presentment, dishonor, and bank notices.

B. Debtor / Drawer Who Gave the Collateral PDC

Your defenses and options:

Contractual limits on deposit (e.g., “only upon default,” “after written demand”).
Proof of payment or set-off reducing the amount due before presentment.
Absence/failure of consideration (personal defense) against a holder who is not in due course.
Stop-payment for valid cause (e.g., loss, forgery risk, non-delivery of goods)—ideally with simultaneous tender of payment by other means to avoid BP 22 exposure.
Cure within five banking days after notice of dishonor to defeat the BP 22 presumption.
Question penalties as unconscionable or lacking basis, and resist premature acceleration.
Rectify errors (e.g., mismatched figures/words) before maturity; otherwise, the written amount in words typically prevails.

C. Banks (Collecting/Drawee)

Drawee banks normally refuse payment of a PDC before its date; paying prematurely can expose them to claims by the drawer.
Collecting banks handle presentment and clearing; they may credit subject to clearing, and charge back if dishonored.

6) Contract Drafting Essentials (to Avoid Disputes)

When using PDCs as collateral, include clear language on:

Purpose: “PDCs are delivered as collateral and not as payment until encashment.”
Presentment Triggers: (a) on scheduled dates; (b) upon default; (c) after written demand and a stated cure period (e.g., 3–7 days).
Acceleration: Specify whether one default accelerates all installments and authorizes deposit of all PDCs.
Replacement & Loss: Process for replacing damaged/lost checks; stop-payment on lost checks with an undertaking to re-issue.
Penalties & Interest: Rates, compounding, and caps; state that statutory limits and public policy apply.
Notice Mechanics: Physical address, email, and deemed-received rules (important for BP 22 notice and Civil Code default).
Allocation of Partial Payments: Whether partial payments suspend deposit of the next PDC, require re-dating, or trigger proportionate deposit.
No-Waiver & Severability clauses; governing law (Philippines) and venue.

7) Litigation & Enforcement Pathways

Civil suit (sum of money or specific performance):

File in the proper RTC/MTC based on amount; attach the instrument (if suing on the check) and/or the contract (if suing on the underlying obligation).
Claim interest, penalties, attorney’s fees, and damages with factual basis.

Criminal complaint (B.P. 22):

File with the Prosecutor’s Office having jurisdiction where the check was made, issued, delivered, or dishonored (venue is flexible).
Attach the check, deposit slip/return memo, and proof of notice of dishonor; document the five-banking-day window.

Defensive strategies (for drawers):

Show payment or arrangements within five banking days after notice; or demonstrate valid stop-payment plus good-faith tender.
Argue breach by the holder (premature deposit contrary to agreement) and seek damages or set-off.

8) Special Situations

Series of PDCs (installments). If one installment is unpaid, the holder can deposit the corresponding PDC; depositing the entire series requires a valid acceleration basis.
Post-dated crossed checks. Crossing signals deposit to account only; it does not change the collateral nature or NIL rights, but limits encashment over the counter.
Stale PDCs. If the holder delays so long that the check becomes stale (typically 6 months), it may no longer be accepted; the holder must sue on the underlying obligation (and may face defenses for impairment/delay).
Forged signature or material alteration. A forged drawer signature means no liability on the instrument for the drawer; banks bear typical forgery risk, subject to defenses like drawer negligence.
Stop-payment due to dispute. Where goods/services are not delivered conformably, a stop-payment with prompt tender of uncontested amounts reduces BP 22 risk and sets the stage for a civil resolution.

9) Practical Checklists

For Creditors/Holders

Keep the original PDCs secured; record each date/amount.
Calendar presentment dates and contractual triggers (default, notices).
If a check bounces, immediately issue written notice (for both NIL and BP 22 purposes) and track the 5-banking-day cure window.
Decide early: civil suit, BP 22, or both (they can proceed independently).
Avoid premature deposit if the agreement conditions presentment on default or prior demand.

For Debtors/Drawers

Fund the account before the PDC date if the agreement allows deposit on schedule.
If a dispute arises, send written notice, consider a valid stop-payment, and tender payment by other means for the undisputed portion.
If notified of dishonor, act within five banking days to avoid BP 22 exposure.
Keep proofs of payment, receipts, and communications.

10) Short Answers to Common Questions

Q1: I gave PDCs as “collateral only.” Can the creditor still deposit them? Yes, but only in line with your contract and on/after the date of each PDC. If the contract says “upon default,” depositing without default is a breach by the holder.

Q2: If a collateral PDC bounces, is that BP 22? Potentially yes. Once presented and dishonored, BP 22 can apply regardless of “collateral” labeling—subject to defenses like payment/arrangements within five banking days after notice.

Q3: Can I deposit a PDC before its date? As a practical matter, no—banks will not pay before the date. Attempting to do so can also violate your agreement.

Q4: If the creditor delayed so long that my PDC became stale, am I free? Not necessarily. The instrument may be unenforceable via deposit, but the underlying debt remains, subject to defenses (including impairment by the creditor).

Q5: Do crossed checks change anything? They limit how the check can be encashed (deposit to account), but they don’t change the rights tied to collateral PDCs or NIL rules.

11) Bottom Line

A post-dated check given as collateral is not payment until encashed.
Depositing it is proper on/after its date and in accordance with the collateral agreement (e.g., upon default or on schedule).
If the check bounces, the holder can pursue civil remedies and, where requisites are met, B.P. 22.
Drawers can mitigate risk through timely funding, valid stop-payment with tender, and curing within five banking days after notice.
Clear contract drafting and disciplined notice practices are the best protection for both sides.

This article is for general information on Philippine law and banking practice. It is not legal advice. For a specific situation, consult counsel and review your actual contracts and bank documents.