Published 3 May 2019, The Daily Tribune

I once acted as legal counsel in a share purchase transaction where the paying agent of the seller refused to consider the manager’s check of the buyer as good as cash. The agent would like to value- date the manager’s check only after clearing to be assured that, indeed, the check was funded. The buyer is one of the biggest lenders in the country. The paying agent is also a bank but whose capital is smaller than the buyer.

The president of the buyer-bank was obviously miffed with this requirement. It was like a slap to his face considering that based on industry practice, when a bank issues its manager´s check, the common understanding is that it is as good as cash, backed up by all the bank’s financial resources.

To dramatize his indignation, he informed the paying agent that payment would be made in cash. The total consideration, mind you, was in billions of pesos. Not only that, the bank president wanted to pay in coins and notes of different denominations. Just imagine the logistical nightmare that went with this decision. How many tellers would have to be tapped to manually count the staggering amount? How many cash sorting machines would have to be made available for the use of the tellers?  How much space would be needed to contain that kind of money? How many armored personnel carriers would have to be made ready to transport the money to the paying agent.

The buyer clearly wanted to make a point, as in you don’t believe that our manager’s check has cash, then we will pay in cash. There was a stalemate but it was eventually resolved. Payments were made thru credit and debit of respective bank accounts.

What if reason did not prevail? Could the buyer have compelled the seller to accept payment in coins? Are coins legal tender?

Legal tender is the currency which the debtor can compel the creditor to accept in payment of a debt when tendered for the right amount. While coins issued by BSP shall be fully guaranteed by the government and shall be legal tender for all debts, both public and private, they have legal tender power only for the following amounts:

  1. One peso coins and coins of higher peso value are legal tender for obligations not exceeding P 1,000.
  2. Twenty-five cents and coins of lower value are legal tender for obligations not exceeding P 100 (BSP Circular 537 series of 2006)

What about notes? Is there limitation on their legal tender power? None. Notes, regardless of denomination, are legal tender for any amount of obligation. So, you want to get even with your creditor? Well, consider paying in coins and notes of various denominations and let your debtor count in your presence.

It may also interest you to note that coins which show signs of filing, clipping or perforation and notes which have lost more than 2/5 of their surface or all of the signatures inscribed therein shall be withdrawn from circulation and demonetized without compensation to the bearer. (Section 56 of RA 7653)

Demonetization is the process of removing the monetary value of a legal tender currency by the issuing authority. Demonetized currency shall no longer be accepted for payment of goods and services. So, next time that you are in possession of a crumpled peso note which has lost its surface, get a ruler to measure the extent of defacement. If it is less than 2/5 of the surface, insist that it is legal tender.

Banks are likewise required to accept mutilated currency notes and coins for redemption or deposit under BP Circular no 829 series of 2014.

Finally, for notes and coins withdrawn from circulation, the rule is that notes and coins called in for replacement shall remain legal tender for a period of one year from date of call. After this period, they shall cease to be legal tender but during the following year or such longer period as the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) may determine, they may be exchanged at par. After expiration of this latter period, the notes and coins which have not been exchanged shall cease to be the liability of the BSP and shall be demonetized. (Section 57 of RA 7653)

As you can see, coins and small denomination notes are not exactly of insignificant value, as long as you know when and how to use them.

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