Types and Movement of Checks
Commission Mandate or Check Collection
This type of check involves a mandate where the drawer directs the recipient to submit it for payment at the bank. The beneficiary, entitled to the amount paid by the bank, doesn’t own the check but receives it in the drawer’s name.
Recognized as a true collection committee, the law requires the drawer to insert the clause “for me” within the check’s text. The recipient’s commission is accountable to the drawer-principal. It’s presumed that the holder of a check collection commission has given the amount to the drawer if they don’t take action within 15 days of the check’s payment. Beyond this period, the commissioner’s accountability is extinguished, and it’s presumed the commission was fulfilled correctly.
The check collection mandate or commission is governed by special rules of the Law of Checking Accounts (Article 11, final paragraph, 12, 36) and is also subject to general rules of mandate and, in particular, to receiving the deputation.
Check Payment Obligations
This is the most commonly used type of check in practice. It’s recognized by the words “for me.” The Checks Act states: “If omitting the words ‘my’ shall mean payment obligations revolved or equivalent provisions” (art. 13, item 3).
Considering the drawer’s objective, Chilean law recognizes only two kinds of checks: the check collection mandate or commission and the check payment of obligations (art. 11, item 1).
The “security check,” as a document subject to a condition, corrupts the check’s function, which is to serve as a means of payment at any time, without conditions. Based on the principle of autonomy, which allows for all types of contracts not prohibited by law and freely agreed upon terms, some higher courts have recognized the validity of security checks.
Another practice is the check a date, where the issue date is later than the actual date. These documents are used as credit instruments, directly contravening the law. According to Article 10, item 2, “The check is always payable at sight. Any mention contrary shall be deemed not written. The check presented for payment before the date indicated as the date of issue is payable the day of presentation.
For the bank, there is no check date. The institution only pays or protests, as appropriate, on the day of presentation for payment.
Between the drawer and the beneficiary, a contract or instrument other than the check can stipulate respecting the title’s date for payment to the bank, establishing compensation if presented before the date. The agreement is fully effective between the parties but has no value against the bank.
Types of Check Movement
The payment order in a check can be transferred from one owner to another, depending on how it was issued. We distinguish three types of checks: nominative, to order, and bearer.
Nominative Check
This is issued to a specific person without explicitly or implicitly empowering its movement. Clauses like “to order” and “cash” are omitted, so the order should read “Pay to John Smith Preston.”
To transfer a nominative check and its amount, one must resort to the regular assignment of receivables (art. 1901 of the Civil Code). As an exception, Article 14 of the Law of Checking Accounts allows for endorsing nominative checks to a bank for official collection. The endorsement allows a bank to charge the amount to the endorser’s current account.
Check to Order
This document contains the beneficiary’s full name and authorizes transfer with the clause “to order.” The clause “or bearer” is omitted, so ownership is transferred by endorsement.
Endorsement is a written document on the back of the check by which the legitimate holder transfers ownership. A regular endorsement includes the endorser’s signature, date and place of the award, the endorsee’s name, and the endorsement’s quality, for example: “Pay to the order of Ricardo Ríos Marchant, value domain, Concepcion, 15 March 1991.” A blank endorsement is also possible, with only the endorser’s signature on the back. Such endorsement always transfers ownership, and the check can move in three ways:
- The blank endorsement can be filled with a third party’s name.
- The document can be transferred by manual delivery.
- A new regular or blank endorsement can be added.
In the first case, the individual transferring the document doesn’t assume joint and several liability for payment. In the latter cases, they are jointly accountable to the bearer if the bank doesn’t pay the check.
The movement of a check to order follows the same standards as a bill of exchange (Articles 17 to 32 of Law No. 18,092), as long as they don’t contradict its nature.
Check Bearer
This check doesn’t designate a recipient or includes the clause “or bearer.” This document circulates by manual delivery.
Whoever gives up a bearer check only guarantees the document’s authenticity because the assignor cannot be identified after the transfer. The check, like any debt, has the characteristic of being literal, meaning its content and size are determined by the document’s wording. As the title doesn’t contain the assignor’s name or signature, they cannot be held responsible for payment, unlike in an endorsement where the endorser’s signature is affixed.