T R A N S L A T I O N

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1 CHECKS Origin: The check or cheque, with characteristics closer to the current ones, appeared in mid XVIII century after the establishment of the Bank of England, in where this document was further developed both doctrinal and legislative. Concept: Many authors defined it as the result of a bank current account contract. It is of universal use and resulted from the banking development. We can define it as the payment order against a bank where the drawer has a checking account where his money is deposited. Also, it is defined as the document that allows the drawer to withdraw on his behalf or a third party s behalf, totally or partly, the funds available. Definitions: Maker or drawer: The person writing a check. Drawee: Is the financial institution where the check can be presented for payment. Payee: Is the person that cashes the check. However, there are cases where is agreed that the check will be paid to the order of the bearer. Likewise, if there is any check that does not specify the payee, it will be understood as it will be paid to the bearer. It is universally accepted that the check is a typical instrument or payment means. Characteristics: According to the provisions of Article No. 919 of the Commercial Code, all checks must have the following characteristics: 1. The word Check written on it; 2. The pure and simple order to pay a certain sum of money; 3. The name of the drawer; 4. The indication where the payment is due; 5. The name of the place and date on which the check is issued; 6. The signature of the person issuing the check. Classification: Checks are classified into three groups:

2 1. In terms of service: 1.1 Simple or Not Cross ed Check: It is the one that has the aforementioned basic or fundamental characteristics. It could be cashed by the payee or holder on presentation to the bank. 1.2 Simple Cross Check: It is the one where the drawer put two parallel lines in front of it, indicating that shall be collected by another bank, so that the payee or holder will have to consign it in his checking account, so that the bank has received payment and will proceed to the drawee s bank and pay its value to the depositor s account. 1.3 Special Cross Check: Is a cross check in which, between the parallel lines, is indicated the name of the bank that must collect it. 1.4 Restrictive Cross Check: It is placed, within the parallel lines, the name of the person to whom only the drawee bank can pay it. This means, it requires to be consigned only to the checking account of the person whose name appears between the parallel lines. It is also customary to use, instead of writing down the name of the person that will be paid exclusively, to be read between the lines pay the first beneficiary or non-negotiable. These checks are not endorsable. 1.5 Check to pay down payments: It is the one that besides being a cross check, the drawer requires to be paid by crediting the amount in the account of the payee. Between the parallel lines could be read to consign to the account of the first beneficiary, and certainly are not endorsed to. 2. In terms of contents: 2.1 Certified Check: When the drawer requests the drawee to certify the existence of sufficient funds to pay the amount. This certification cannot be issued to checks drawn to the bearer. 2.2 Check Guarantee: This is a certified check but whose certification is mass-produced by the drawee, this means, it is not a single unit, but by providing the account holder (that requested so) checkbooks in which all checks are certified checks. 3. In terms of scope: 3.1 Traveler s Check: Are those checks issued by a bank as special forms that will be paid in their own branches or correspondents, both domestically and abroad. 3.2 Cashier s Check: Is the one issued by a bank on its own account to be paid to another person or even to the bearer. This check is issued by the bank so it is at the same time drawer and drawee. 3.3 Taxpayer Check: Is the one issued by the current account holder (drawer) to the National Treasury.

3 Collection: The Commercial Code establishes the term in which the beneficiary or bearer of a check has to cash it, so Article No. 932 of the aforementioned code mentions that: Article 932. The term to cash a check drawn in the same place of issue is of ten days to be counted from the date of issue. If the check was drawn in a different place, the term to cash it will be of fifteen days; and if the check was drawn abroad, the term will increase depending on the distance and communication means. If the check is not presented to be cashed in the aforementioned terms, the bearer will have no resources, if not paid, against the endorsers or the drawer, because the drawee limited his actions against himself. The drawer s responsibility shall continue if, after the issuance of the check, has arranged the funds to cover it. Endorsement: The presentation in a clearing house is equivalent to payment remittance. It must be understood as endorsement the signature of the holder of a negotiable document on the back of it. The word originates from the expression signing on the back. The endorsement is the transfer, to a third party, the ownership and rights of the endorsed document. If the endorsement is blank, this means, only with a simple signature, without specifications or restrictions, the document becomes payable to the bearer. An endorsement can also be made specifically mentioning to whom the document is transferred to. This way of endorsement is safer, because the document may only be changed (or re-endorsed) by the person to whom it has been transferred. On checks, to the nominative check applies the endorsement of the bill of exchange. The blank endorsement is one of the most often seen in practice it is very comfortable and is easy to transfer these documents simply by signing on the reverse. The non-negotiable nominative checks, whether it has been inserted in the text the non-negotiable clause or because the law has enabled them, may be endorsed only to a lending institution for payment. Once a check is issued, the holder of the document in due course can endorse it to the natural or juridical person that he wants to. The qualification of endorsement lies on the bank that receives the document for its respective payment.

4 In the Republic of Panama, the endorsement is regulated by the Commercial Code and the Law on Negotiable Documents. In this regard, articles 926, 928, 850, 851, and 852 of the Commercial Code provide the following: Article 926: Unless the check was issued to the bearer, all checks, even if are not expressly drawn to the order of, are transferable by endorsement Article 928: Are applicable to the check, unless concerning to its acceptance, the provisions of articles on the endorsement of bills of exchange and negotiable bank notes. Article 850: Endorsement shall be written on the bill of exchange or on a sheet of paper attached to it, and shall be signed by the endorser. The endorsement is valid even if the beneficiary is not appointed, or if the endorser only affixed his/her signature on the back of the bill or on a sheet of paper attached to it (blank endorsement) Article 851: The endorsement conveys all rights attached thereto to the bill of exchange Article 852: Unless otherwise stipulated, the endorser is the guarantor of acceptance and payment. According to the aforementioned, the check could be paid by any payer (natural or juridical person), without having to be necessarily present at the drawer s or payer s bank offices, it could be done only with the endorsement of the check. However, who makes the payment has the duty (obligation) of verifying the identity of the person who endorses it, since once the endorsement is accepted the holder is guarantor of that endorsement. Payment: Payment: In Civil Law, payment means settlement of a debt with another, between two people that owe each other similar things. In this case, the payment must be understood as: Bank Compensation : It is a special way of payment between banks, or through them, when there are multiple and reciprocal creditors and debtors. Because of it, and previously agreed upon between the interested parties, a global settlement of credits and debts, to the extent of common, will be made and thereby eliminate the many operations of the interim payments. (Guillermo Cabanellas, Encyclopedic Dictionary of Usual Law) Clearing House: Trade auxiliary institution, responsible for handling and liquidating credits and debts of the holders involved in the clearing process.

5 It avoids an enormous amount of currency; and banking transactions are considerably simplified. The bills of exchange, checks, vouchers, notes, payment order, and slips against current accounts are loan documents, which are often subject to such compensation. (Guillermo Cabanellas, Encyclopedic Dictionary of Usual Law). In Panama, the Clearing House is the administrative unit of Banco Nacional de Panamá. It consists of all member banks that perform among themselves the exchange of documents and settlement of the proceeds of the exchange. This unit oversees compliance with the requirements for such operations and the security of such documents. (Banco Nacional de Panamá, Clearing House Regulations). In order to explain in detail this issue we will refer to Rule No , whereby general parameters are set for clearing checks and fund availability. This rule regulates clearing in general, establishing that the time period to clearing checks drawn by or against banks within the market will be determined by the Clearing House of the Banco Nacional de Panamá. By the other hand, it establishes that cash deposits will be available immediately, meanwhile the checks drawn against the same bank will be available the same day, however, in case of deposits of checks drawn against another bank in the market, will be available immediately once the check has been cleared by the Clearing House of the Banco Nacional de Panamá as long as the bank holds a general license. In case of international license banks, it will be immediately available once the bank that renders the clearing service confirms the availability. Last but not least, the aforementioned rule establishes that, in regards to the availability of deposits of checks drawn against banks in foreign markets, it is the duty of the bank to inform to its customers the estimated time period when the funds will be available, however, this time period shall not exceed fifteen (15) business days. Storage Technology: In the Republic of Panama is permitted the storage (archive) of checks, as long as they meet the provisions of Law No. 11 of 22 January 1998, which regulates the technological storage of documents and other provisions are taken. This provision states in Articles 1 and 6: Article 1: It is allowed the document storage technology, through, microfilming or optical and/or magnetic system, in state s and municipal s offices, autonomous and semi autonomous institutions, as well as natural and juridical persons files that want to benefit from the provisions of this Law Article 6: The hardcopies of the documents subject to the storage system technology shall remain in the archives of the respective public and private offices in a safe place, until those can be depurate in accordance to the techniques that the Executive Branch may regulate purporting this.

6 It is necessary to explain that aforementioned Law No. 11 provides that copies will be authenticated by the manager of the corresponding archive or public or private office as custodian and there are written evidence of such. Law No. 11 of 22 January 1998 was regulated by Executive Decree No. 57 of 19 May Article No. 6 of said Executive Decree states: Article 6: The original documents technologically stored shall be maintained for a year, starting the date they were technologically stored, as long as the registry date on the Public Registry of the name and signature of the manager of said archive or public or private office acting as custodian is before the date those were technologically stored. Once this period is over, they could be depurated or destroyed without altering in any way the expiration or limitation of the original document. The following original documents, even though were technologically stored, cannot be destroyed: Negotiable documents as described in Law 52 of 1917 and its respective regulations, until the transactions they represent are fully consummated or completed It is important to mention the provision in the aforementioned Law No. 11, does not detract from the provisions of Article No. 93 of the Commercial Code, which provides that: Article 93: A businessman or broker is required to keep necessary accounting records, for the entire duration of his administration and up to five (5) years after closing his business In conclusion, the entity that adopts the technological storage system shall keep the original of the document for one year and the document stored technologically for the expiration period of any action arising from it. Likewise, shall authenticate the copies requested by their customers, users and/or accountholders. Check s prescription: Prescription: It must be understood as prescription, the consolidation of a legal situation due to elapsing time; either becoming a fact in law, such as property ownership; because of perpetuating a waiver, abandonment, neglect, inactivity or impotence. (Guillermo Cabanellas, Encyclopedic Dictionary of Usual Law) To speak of a check s prescription we must refer to what is stated in articles 943 and 908 of the Commercial Code, which mention: Article 943: Checks will be governed by the provisions on bills of exchange and negotiable bank notes that are not contrary to their nature.

7 Bibliography: Commercial Code. Law 52 of Article 908: All actions resulting from a bill of exchange against the acceptor, prescribe three years from the maturity date. Article 986: Actions resulting from the Current Account or payment of the same, will prescribe in five years. Likewise, the interest of balance payable by an annuity or shorter periods will prescribe. Article 942: The actions of the bearer against the endorsers and the drawer will prescribe six months from the expiration date of submission. Decree Law No. 9 of 26 February 1998 and its concerning regulation (Banking Rule No of 21 September 2005). Interbank Agreements. * Rodríguez Azuero, Sergio, Banking Contracts. Cabanellas, Guillermo, Encyclopedic Dictionary of Usual Law * It is necessary to clarify that interbank agreements reflect the Banking customs and practices; are mandatory for members of the National Banking Association; it is also true that the same, although in a given moment can be seen as sources of Banking Law, cannot be above the rule or statutory provisions governing the subject matter on the use or practice in question.