Check Relationships: Drawer, Payee, Holder, and Drawee Obligations
A) Relationship Between Drawer and Drawee
The internal relations between the drawer and drawee are governed by contract. This agreement is normally part of a broader banking contract and includes the provision of a checkbook and the bank’s obligation to honor validly issued checks if sufficient funds are available.
The key issue between drawer and drawee is the effectiveness of check revocation (covered in Art. 138.1). Revocation has no effect until after the submission deadline. If the drawee bank pays before the deadline, the payment is legitimate, even against the drawer’s will. The bank is not obligated to follow a stop payment order before the deadline and incurs no liability for paying. Conversely, the bank can accept the revocation and not pay without liability to the holder. Revocation acts as authorization for non-payment.
However, Art. 108.2 suggests the drawee is liable to the holder if sufficient funds are available and the check is valid. This implies the bank is obligated to pay, and revocation is ineffective during the filing deadline. The bank must pay valid checks despite revocation, or risk liability. The drawee must follow the check’s order. This strengthens the holder’s position and the check’s function as a payment method.
The bank’s obligation to pay is limited to the check’s presentation period. After this, the bank can refuse payment if revoked. If the drawer issued a stop payment order before or after this period, the bank must comply and refuse payment (Rule 138.2).
B) Relationship Between Drawer and Payee
Following check issuance, legal relations emerge between the drawer and the payee. Normally, the check pays a debt from the drawer to the payee. It can also be a loan or donation. In any case, an exchange relationship is added to the underlying relationship, with the drawer guaranteeing payment.
Typically, the check extinguishes a pre-existing debt. The delivery terms (pro soluto or pro solvendo) determine the effect on the underlying obligation. Pro soluto replaces the causal obligation with the exchange obligation, extinguishing it. Usually, it’s pro solvendo, where the check facilitates payment, but doesn’t extinguish the debt. The causal action is suspended until the check clears. If unpaid, the creditor can pursue the causal action or the exchange action.
C) Relationship to Holder and Forced Return
When an order check is transmitted by endorsement, it guarantees payment (section 124). All endorsers and the drawer are jointly and severally liable to the holder for the check’s successful completion. For bearer or registered checks, only the drawer is liable (except for lists or art. 126 situations), and cannot guarantee payment (art. 118). This applies regardless of underlying relations between the drawer and successive holders.
In short, check signers are obligated to the holder, who can take action against them. They are jointly and severally liable as per Art. 148, similar to Art. 57 for bills of exchange.
D) Holder and Drawee Relations
Traditionally, doctrine held that no direct legal relationship exists between the holder and the drawee. The drawee is obligated to the drawer, and the drawer to the holder. However, the holder can claim payment from the drawee.
Since the enactment of the LC, Art. 108 states that the drawee with sufficient funds at the time of submission of a validly issued check is bound to pay. This is not just a contractual obligation to the drawer, but an obligation under the Exchange Act, strengthening creditor protection.
Art. 108.2 creates an obligation of the drawee bank to the check holder (STS of 30 September 1993). This aligns with the Act’s aim to protect creditors by adding a direct action against the drawee.
This interpretation is supported by banks’ role in check transactions. Their financial system duties justify an obligation to honor checks with sufficient funds. Failure to comply makes them liable to both the drawer and the holder.
The bank’s liability is of an exchange nature (despite STS of 30 September 1993). It’s a legal obligation due to their role in payment intermediation. A bank with sufficient funds that doesn’t pay a validly issued check is liable to the holder for the amount, costs, interest, and damages. This is not tort or contractual liability, but a legal obligation. The holder can claim the amount due through a declarative action.
This bank obligation expires after the deadline. If the bank then refuses payment (e.g., due to revocation), the holder cannot claim against them.