NEGOTIABLE INSTRUMENTS LAW

Course Outline by Lemuel Japa Seva

BASIC FUNCTION OF PHILIPPINE CLEARING HOUSE

1. Exchange (Part 1 Sec. 1 to 28)

Sec. 1 Purpose

*Basic understanding to the clearing operation

*Defining the objectives of PCHC
*The liabilities and responsibility
*The relationship PCHC and participating Institutions

Sec.2 Objectives of MICR Clearing

2.1 To effect at designated place and daily exchanges of encoded MICR checks.
2.2 To provides reports to BSP as basis of settlement of exchanges.
2.3 To furnish information, to balance, identify and trace processed operation.
2.4 To assist the banking and financial community.
2.5 To promote primary purposes of corporation.

Sec.3 Agreement to these Rules

*General agreement and understanding by participant in PCHC MICR clearing

operations manifests to these rule and regulations and amendments.

Sec.4 Participants

4.01 Must be Banking Institutions and operates under the charter of BSP.

4.02 Must agree to be bound by CHRR adopted by Board of Directors of PCHC.

4.03 Approved applicant but not qualified as stockholder of PCHC.

4.04 Qualified Stockholder of PCHC shall pay subscription price.

 4.1 Classes of Participants

4.1.1 Stockholder Participant

*Commercial Bank

*Member of Bankers Association of the Philippines

*Subscribed Stock from PCHC

4.1.2 Non-Stockholder Participant

*Financial Institution approved by Board and paid service fee

4.1.3 A non-Stockholder

*Bank that may qualify to become BAP member/ Comrcl. Bank

4.2 Voting Rights

All Stockholder Bank have the right to vote

Sec.5 Withdrawal of Participation

*60 days after the notification in writing to the PCHC Board of Directors

*Forfeiture of service fee previously paid

Sec.6 Suspension/Exclusion

6.1* BSP approval thru PCHC board of Directors

* Infractions of Clearing House Rules and Regulations

*Non-payment of fees payable to PCHC

6.2*Strike or Force Majeure

6.3*BSP directive or instruction

Sec.7 Clearing Representatives

Personnel of competent bank not exceed (2) per branch/office

7.1*Appointed Representative of clearing participant

7.2*Posses ID card issued by PCHC

Sec.8 Clearing Days

8.1*Daily except Saturdays,Sundays,Legal Holidays,and Nationwide non-working

Holidays.

8.2*Non-working local holidays except the holiday covers entire MM. area.

Sec.9 Emergencies

Declaration of Chairman, President, Executive Vice-President or Vice President

due to Force Majeure or Natural Calamities.

Sec.10 Frequency and Time of Deliveries

Board of Directors of PCHC shall prescribe

Sec.11 BRSTN (Banking Routing Symbol-Transit Number)

11.1*PCHC assign the BRSTN of all branches/offices participants

11.2*Banks advise PCHC 30dys before opening new branches

Sec.12 Trustee Responsibility

Clearing House held in trust only when item received until final settlement.

Sce.13 Bank Records of Clearing Items

Bank maintain records

Sec.14 Photo-Copy of Clearing Items

14.1*PCHC microfilm the items

14.2*Photo copy certified by PCHC served as binding documents

14.3*Photo copy of lost item duly certified by (2)authorized officers shall be

used as binding documents

14.4*Section14.2 and 14.3 remain valid and binding

Sec.15 Retention of Records by PCHC

15.1*Furnishing duplicate list by PCHC

15.2*PCHC shall keep micro film copies in 5yrs.

Sec.16 Items Eligible for PCHC Processing

16.1*MICR qualified items shall eligible for process by PCHC except Sec.16.3

16.2*Legitimacy of items

16.3*Electronic Transfer System thru computer media

Sec.17 Bank Guarantee

*All checks cleared by PCHC

a) Name of the bank/branch BRSTN (Date Processing)

b) Checks guarantee not been affixed

c) Drawee Bank shall return any check for lack of guarantee stamp

d)Banks not affixing guarantee stamp subject for penalty

Sec.18 PCHC Handling Identification

*Placing legend at the back of checks by PCHC, it is not legal endorsement

a) Bank BRSTN

b) Date of Clearing

c) Key Block Number

d) Document ID Number

Sec.19 Regular Clearing Item Procedure

*Authorized Representatives deliver to PCHC all qualified MICR checks

19.1 Procurement of batch control slip from BAP-accredited security printers

19.2 MICR encode the peso amount

19.3 Encoded batch control slip placed in front of the item

19.4 Batches folded reverse for normal reading position

19.5 Batches shall protected

19.6 Correction for the error of encoding

Sec.20 Regular Return Item Procedure

20.1 Refused by the Drawee Bank in accordance with the long standing and
accepted banking practices.

a) It bears forge/unauthorized signature of the drawers

b) Drawn against closed account

c) Drawn against insufficient funds

d) Payment stopped

e) Post-dated or Stale date

f) Check of the drawee altered

20.2 Deprive the bank within reglementary period the right to return items thru
PCHC

20.3 The right of the drawer bank to recover is governed by law

20.4 Returns of items shall presented to the clearing house via MICR

Sec.21 Special Return Items Beyond the Reglementary Clearing Period

Items with forged endorsement undergo negotiation/legal action

Sec.22 Special Clearing of Checks

22.1 Allowed ONLY for regular clearing items cut-off time

a) Regular clearing items- 8:00pm Drawee Bank CentralClearing Unit

b) Return Items-10:00pm Presenting Bank’s Central Clearing Unit

22.2 Special clearing receipt shall be used for Regular Clearing Checks and
Returned Items

22.3 Subject to return within 24 hrs reglementary rule

Sec.23 Limitation for Presentation of Clearing Items

23.1 Second presentation subject to penalty of 1% minimum of P1,000.00

23.2 Payment stopped or Account closed also subject of 1% penalty min. of

P100.00 per day
Sec.24 Procedure for Discrepancies on Bank’s Outward Items

PCHC shall reconcile and pass adjustment tickets to bring the batch balance

Sec.25 Procedures and Penalties on Clearing Discrepancies

a) Over -encoding of amount

b) Under-encoding of amount
c) Miscleared regular items
d) Misdirected returned items

25.1 General Procedures

a) Initiate and undertake immediate corrective action

b) Notification by telephone cable or messenger

c) Settlement by bank officer using charge slip signed by authorized person

d) Penalties separately collected via charge slip

25.2 Over-encoding of Amount

25.2.1 Receiving bank should inform not later than 10:am the following clearing
day

25.2.2 Officers correct the errors via charge slip & debited back to erring bank

25.2.3 Imposing 1% penalty minimum of P50.00 per day

25.2.4 A fixed handling fee of P200.00 imposed by receiving bank from erring
bank

25.3 Under-encoding of Amount

25.3.1 Receiving bank inform erring bank not later than 10:am of the following
clearing day

25.3.2 Officers arrange to correct error via charge slip

25.3.3 No penalty is imposed if timely notification

25.4 Miscleared Regular Items

Erroneous BRSTN for settlement

25.4.1 Miscleared Regular Item is debited

A. Receiving Bank/Branch
 a) Amount of check/item

b) Date of clearing/Presentation

c) Check number

d) Drawee Bank/Branch

e) date of check

f) Account number of drawer

g) Account number of depositor

B. Presenting Bank/Branch

To receive info, to request and to pay the penalty

25.4.2 If NOT debited

A. Receiving Bank/Branch

a) Amount of check or item

b) Check number

c) Date of clearing/Presentation

d) Date of check

e) Drawee Bank/Branch

f) Account number of drawer

g) Account number of depositior

B. Presenting Bank/Branch

Receive info of miscleared regular item

C. PCHC

To advice drawee bank/branch of miscleared regular item

D. Drawee Bank/Branch

To receive info,earmark the drawers account & accept MRI from

PCHC
 Sec.25.5 Misdirected Return Items

Sent by mistake due to erroneous BRSTN

25.5.1 Misdirected Returned Item is debited

A. Receiving Bank/Branch

*To deliver MRI to PCHC on or before 9:00pm

*To collect erring drawee bank/branch with P100.00 penalty

B.PCHC

*To prepare reversing entry

*To send MRI to correct presenting branch

25.5.2 MRI is not debited as part of receiving bank’s incoming item

A. Receiving Bank/Branch

*To deliver MRI to PCHC on or before 9:00pm of the same clearing day

B. PCHC

* To verify if MRI was properly debited

* To endpoint MRI to the correct presenting bank/branch

25.5.3 Receiving bank notice the delivery of MRI to PCHC

Sec.26 Loss of Clearing Items

26.1 Report immediately if lost or destroyed to PCHC

a) Document Identification Number

b) Item Amount

26.2 Failure to report is solely responsible

26.3 PCHC furnish a photocopy of lost or destroyed item

Sec.27 Penalty Charges on Returned Items

27.1 Service charge of P600.00 each check except the ff:

a) Account closed
 b) No account

c) Under Garnishment

d) Spurious check

e) Documentary stamp missing(foreign checks/drafts only)

f) Post-dated/Stale-dated

g) Validity restricted

h) Miscleared item

i) Deceased depositor

j) Violation of clearing rules and or procedures

k) Lost by presenting bank while in transit to clearing

Distribution of service charge:

a) P300.00 for credit to the presenting bank

b) P300.00 for credit to the drawer bank

27.2 Checks of any Gov’t. office or branches may be returned for:

a) No advice

b) Differs from advice

27.3 Post-date/Stale-dated drawee bank shall collect penalty 1% or P100.00

27.4 Reclearing of returned check only once

27.5 Penalty for insufficient funds and drawn against uncollected deposit

27.6 Stop payment

27.8 Holidays not exempt from participating in the clearing operation

Sec.28 Penalty of Rejected Items

*Fines fixed by the Board of PCHC