Certified Checks and Assignment

If you've read The Check, that was an introduction to this article. 

Certified Checks

If a check is certified by the bank from which is is drawn, the certification is considered as an acceptance. Payment is therefor guaranteed if it is presented. These are its effects:

1.) Certification = Acceptance

2.) If procured by the holder, all persons secondarily liable are discharged from liability

3.) Operates as an assignment of the drawer's funds in the hands of the drawee bank

4.) The payee or holder becomes the depositor of the drawee bank for all intents and purposes and with the rights and duties of one so situated

5.) The drawer can't issue a stop payment order on a certified check

Certifying checks enables persons who aren't well-acquainted with each other to do business quickly since the holder of the check can make the drawee bank encash the check. It avoids the risks and delays of handling large amounts of money.

If the holder procures the check's certification, the owner and indorser are discharged of their liability because the amount of the drawer's credit deposit with the drawee equal to the amount in the check is taken from the drawee and used to pay for the check. If certification was procured by someone who isn't the holder, the secondary parties aren't discharged as when it is obtained by the drawer even at the payee's request or if the payee is also the drawer himself. In the Philippines, certification is made only on the drawer's request. Cashiers' and manager's checks have the same treatment as certified checks and most banks charge a fee for certification.

Assignment

A check doesn't operate as a transfer or funds until it is accepted or certified. On its own, it's just an order by the drawer to the drawee to pay the payee. When the assignment is finally made, whether by certification or acceptance, the cash is already considered transferred. It's no longer the drawer's money.

There are, however, instances when the bank can refuse payment of checks drawn against it:

1.) The bank is insolvent

2.) The drawer's account is either insufficient, closed, garnished or doesn't exist

3.) The drawer is insolvent and proper notice is given to the bank

4.) The drawer dies and proper notice is given to the bank

5.) The drawer has countermanded payment

6.) The holder refuses to identify himself

7.) There is reason to believe that the check is forged

8.) The check is stale or postdated (postdated checks are payable on or after the date indicated)

A contract of deposit (the opening of a bank account) between the bank and a depositor is a contract of loan. The depositor loans money to the bank and the bank is obliged to pay interest for its use. The bank is the debtor while the depositor is the creditor. If, however, checks are received by the bank for collection and deposit, the bank now becomes an agent of the depositor as far as the collection of money from the banks from which the checks in question were drawn.