Notice of Dishonor for Bounced Check

What is a Notice of Dishonor?

A Notice of Dishonor can be used by a person (called the "payee") to inform another person that wrote the check (called the "drawer") that their check has been dishonored (dishonored means it is not accepted by the bank).

This letter can be used if the check was dishonored for 2 main reasons:

• Insufficient funds (e.g. the person who wrote the check didn't have enough money in their bank account), and
• Closed account (e.g. the person who wrote the check moved their account to another bank).

Note that the payee is the person in whose favor the check was written. If the check is payable to "cash" (i.e. the payee named on the check is "cash"), then the payee is the person who holds the check.

What is the difference between a Notice of Dishonor and a Monetary Demand Letter?

While both documents are similar because they involve failure to receive a sum of money, they differ in the following manners:

• A Notice of Dishonor is a letter used to inform a person who has issued a check as payment that the same has been dishonored or not accepted by the bank, whereas, a Monetary Demand Letter can be used when a person who is owed money has made repeated demands to be paid and has been ignored.
• Further, a Notice of Dishonor relates to the failure to encash a check and receive payment because it is dishonored by a bank, whereas a Monetary Demand Letter relates to the failure to receive payment of money and a demand is made for the said payment to be made. Payment referred to in these two documents may relate to the failure of any payment obligation such as failure to pay for the purchase of goods or services or failure to pay back a loan.
• Lastly, a Notice of Dishonor is the main requirement when initiating a criminal case due to the dishonor of the check, whereas a Monetary Demand Letter is the main requirement when filing a case to recover a sum of money.

When is a Notice of Dishonor necessary?

A Notice of Dishonor is required to be sent to the drawer before a criminal case can be filed against him, by reason of the check's dishonor by a bank due to insufficient funds or a closed account. Without a Notice of Dishonor, no such criminal case can be filed against him, and encashment of the check or payment of the amount under it will not be possible.

Note that the payee and the drawer can always agree to settle the amount in the check between them and not resort to the filing of a criminal case.

Note further that checks are given the same treatment as cash in most transactions which is why writing checks knowing that the account is unfunded or that it has closed is punished by law with imprisonment.

What are the prerequisites of a Notice of Dishonor?

Since a Notice of Dishonor may lead to imprisonment of the drawer of the check, it is important for the payee to make sure that the check has been dishonored by the bank.

The bank will usually inform or notify the payee that the check has been dishonored due to insufficient funds or a closed account resulting in the failure of encashing the check. This notice from the bank should be first obtained before the drawer is informed of the check's dishonor through a Notice of Dishonor.

What has to be done once the Notice of Dishonor is ready?

Once completed, at least two original copies should be printed, then the notice of dishonor should be sent either by registered mail or by personal service.

If it will be sent via registered mail, both original copies of the letter should be signed by the payee, one original copy should be kept by him and the other should be sent to the drawer by registered mail. After sending, the registry receipt or mail receipt in relation to the mailing of the second original copy must be kept by the payee.

If the letter will be delivered through personal service, the drawer must acknowledge receipt, legibly sign both original copies of the Notice of Dishonor, and indicate the date of receipt. The drawer should keep one original copy then the other should then be kept by the person who informed the drawer of a dishonored check, so it can be used as proof of receipt of the Notice of Dishonor.

Note that personal service is the better option between the two modes of sending as it can be ensured that the drawer will acknowledge the receipt of the Notice of Dishonor.

Also note that original copies mean those copies of the Notice of Dishonor that are actually signed by the payee, and not merely photocopies.

After receipt of the Notice of Dishonor, the drawer will have 5 days to pay the payee the amount owed under the check.

Which documents should be attached to the Notice of Dishonor?

The following documents should be available in the event that a criminal case can be filed against the drawer by reason of the check's dishonor by a bank due to insufficient funds or a closed account:

• If the letter will be sent by registered mail:
  • The Registry receipt, and
  • The Registry return card which should be signed legibly by the payee should be attached to the Notice of Dishonor.
• If the letter will be sent by personal service:
  • An affidavit should be signed by the person who sent the Notice of Dishonor detailing the circumstances of personally sending the same to the drawer, and the affidavit should be attached to the Notice of Dishonor.

What are the costs involved in the finalization of a Notice of Dishonor?

Costs for sending the Notice of Dishonor may depend on the method used in sending the letter. The costs for registered mail or courier will be dependent on the distance between the residence of the drawer and the payee. Similarly, if the Notice of Dishonor is sent personally, the travel expenses will be dependent on the distance between the residence of the drawer and the payee.

What must a Notice of Dishonor contain?

A Notice of Dishonor contains the following information:

• The details of the payee,
• The details of the drawer,
• The details of the check(s), and
• The reason why the check(s) was dishonored.

Which laws are applicable to a Notice of Dishonor?

Batas Pambansa 22 and jurisprudence govern Notices of Dishonor. The Bouncing Check Law is violated when the following elements are present:

• The making, drawing, and issuance of a check,
• The knowledge of the maker, drawer, or issuer that at the time of the issuance of the check, he does not have sufficient funds with the bank for the payment of the check in full upon its presentment, and
• The dishonor of the check by the bank for insufficiency of funds or closure of the account.

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