In legal terms, a check is a type of payment instrument where a draft on an account is used to instruct a bank or other similar financial institution to transfer funds from the payor’s account (i.e., the person who signs and presents the check) to the payee’s account (i.e., the person or business that receives the check).
In general, checks are issued by a financial institution for account holders to use as an alternative to paying with cash or credit. There are many different types of checks, including:
- Government Checks or Warrants: A government check, or warrant, is an instrument payable on demand that is drawn by the government or on the government:
- For example, something that the Treasurer of the United States draws.
- A warrant that is issued by a governmental agency or by a state or local government is also treated as a check if it is payable on demand;
- Cashier’s Checks: A cashier’s check is a bill of exchange or a draft, which a bank draws on itself:
- Generally speaking, a cashier’s check is purchased by the customer of an issuing bank and is used for a payment when a check that an authorized representative of a bank signs is needed.
- It is important to note that the purchaser of the cashier’s check is not a party to the cashier’s check unless they are named as a payee or they add their own signature or endorsement to the cashier’s check;
- Teller Checks Or Bank Drafts: A teller’s check, or bank draft, is a draft drawn check by one bank on another bank. Alternatively, it is payable through or at a bank:
- For instance, a similar check would be a banker’s check, which is a check with the banker acting as a drawer or the duly authorized agent of the bank.
- This type of check is drawn on funds at the bank where the individual is an agent or officer or in a corresponding bank where the agent’s bank has credit;
- Certified Checks: A certified check is a check which is accepted by the bank from which it is drawn:
- Importantly, the acceptance of a certified check may be made by the bank’s signed agreement to pay the check as presented or by writing on the check which indicates that the check is a certified check;
- Traveler’s Checks: This type of check is intended to provide the instrument with the marketability of cash and the safety of a bank draft:
- A traveler’s check makes it considerably simple to cash when the owner/purchaser of the check is not known to the cashing entity.
- Additionally, purchasers of traveler’s checks are protected against loss of the instrument if it has not been countersigned; and
- Bank Money Orders And Personal Money Orders: A bank money order is a prepaid instrument, which is similar to a check, that a person obtains in exchange for cash:
- Money orders are used to send money to other individuals, and the recipient can easily deposit the money order into their own bank account. There are three parties to a money order:
- The remitter, or payor;
- The payee;
- The drawee.
As far as the parties that are involved in a check transaction, the person that issues a check is called a drawer or payor, while the party that receives a check is known as a drawee or payee.
Why Would a Bank Dishonor a Check?
A dishonored check is a check that has been presented to a bank or financial institution for deposit or to be cashed. However, the financial institution refuses to accept or honor the check presented. It is important to note that there are a variety of reasons why a check may be dishonored.
For instance, a check is dishonored when there are insufficient funds in the account of the payor or if there is any evidence that the signature on the check has been forged or altered. If this is the case, then forgery or check fraud may have occurred. Additionally, a financial institution may also refuse a check if the payor’s account has been closed or the account was closed by the bank.
You, as a payee or payor, have been notified that a check you wrote or deposited was dishonored. If this is the case, it’s important to immediately contact the bank since fees could be incurred, as well as costs associated with the dishonored check.
There may also be additional legal penalties associated with a dishonored check, such as collections or potential legal action from the bank or law enforcement in the case of check fraud or forgery. If an individual is convicted of forgery or serious check fraud, they may be charged with a felony.
What Is a Stop Payment?
A stop payment is an action that occurs when an individual gives their bank reasonable notice not to honor a check that they wrote. In other words, stopping payment on a check is an order made to a third individual or the bank to stop payment for a specific sum.
It is important to note that stopping payment on a check is possible at any time prior to the check being cashed. However, once the check has been cashed by its recipient, the person who wrote or authorized the check will not be able to make a stop payment with their bank.
In general, in order to stop payment on a check, the payor should take the following steps:
- First, the payor needs to contact their bank as soon as possible;
- Next, the payor must notify their financial institution orally that they wish to stop payment on the check;
- Then, if the bank requests a written statement, the payor must issue the bank a written request as soon as possible; and
- Finally, the payor should make notes in their own accounts regarding the stopped payment.
If necessary, the payor may wish to inform the recipient or payee of the check that they have put a stop to the check payment. Then, the payor may consider an alternate form of payment. It is important to note that some banks will charge a fee for stopping payments on a check. As such, payor’s should check with their financial institution as to whether or not there are fees or penalties for stopping payment on a check.
Know Your Responsibilities When Accepting Checks as Payment
When dealing with customers who wish to pay by check, it’s important to make sure the person or payor who is presenting, issuing, or signing the check is authorized to use the account from which the funds will be drawn. This generally means that their name should match the name on the account and be verified with identification.
If a person who is unauthorized to issue a check presents a check, then the true account holder may later request a stop payment of the check due to check fraud. Then, if the stop payment is successful, the funds will not be deposited into the payee’s account. Generally, checks are run through an electronic verification system at most stores, and funds are immediately transferred from the listed institution to the business’ receivables account.
Further, if a payee deposits a customer’s check into their checking account without verifying the available funds or if they accept a post-dated check, then they may also be at risk of not getting paid. As such, it is important to ensure that the check has not been altered in any way and that no other abnormalities are present, such as:
- Evidence that the check being post-dated or dated beyond 90 days;
- Evidence that the date present on the check has been altered;
- Evidence that the font looks different from how it normally would or is larger than normal;
- Evidence that the check number seems out of sequence;
- Evidence that there are smears, blurs, or other marks on the paper itself which make it difficult to read what’s printed on it;
- Evidence that the check looks like it was copied or made with a color printer.
As a payee, if you’re unsure about a check that has been presented to you for payment, it is important to check with the financial institution associated with the check. When it comes to accepting checks from customers or individuals, it’s always better to play it safe and avoid the headache of trying to recoup losses or suing someone to collect the amount you are owed.
What Are the Penalties of Writing a Dishonored Check?
As mentioned above, there are various legal penalties that may be associated with writing a dishonored check. The legal penalties will typically be dependent on the circumstances and the criminal intent with the dishonored check. Each state typically has a crime associated with issuing a bad check. Issuing a bad check is a criminal offense that can result in criminal penalties such as imprisonment, criminal fines, or a combination of both.
Depending on the amount of the check that was dishonored, a person who knowingly writes a bad check may also be charged with a felony. Further, in most states, the crime of forgery is also considered to be a felony crime.
In addition to possible imprisonment and criminal fines, a court may also order a payor to pay restitution to the person or business who received the bad check. This means that the payor would have to reimburse the payee for any money that they lost as a result of their criminal actions.
There are some cases in which checks are dishonored due to an innocent mistake, such as writing the incorrect amount on a check. For instance, a payor could write $1,000 instead of $100. Another reason for dishonoring a check may be due to a mistake, such as signing one’s name slightly different from the signature the bank has on file.
A common reason that many checks may be dishonored is due to insufficient funds (“NSF”) in the payor’s account to cover the transaction due to a mistake or oversight in their checking account. Typically, a bank will cover the check and charge the payor a fee, but in cases of large amounts, the check may not be honored.
Do I Need an Attorney for a Dishonored Check?
If you are experiencing issues associated with a dishonored check, whether as the payor or the recipient, it is in your best interest to consult with an experienced local financial lawyer. An experienced financial lawyer can provide you with relevant information regarding your state’s specific laws on checks. Additionally, an attorney will also be able to represent you in court, as needed, should legal action be required.
