Martin Silver is a practicing attorney with offices in Hauppauge, N.Y. He was a flooring installer before and during the time he went to law school and has since represented numerous industry people and companies. To contact him, call 631-435-0700.
But the bank said the check was good
Most dealers now insist on receiving payment at the time of delivery in cash, certified or bank check only. Sometimes, however, even these dealers are placed in a position where they are offered a regular personal check. The first thing most of them do in this situation is to call their customer's bank to see if the check is good.
One dealer recently presented with a check for $2,000 did just that. The bank manager assured him there were more than enough funds in the account to cover the check. In fact, the manager inferred the account at that time held well over $100,000. With this type of assurance, the dealer accepted the check and delivered the goods. The check was then immediately deposited, and, sure enough, it was bounced back with the notation "insufficient funds."
The customer apparently had written other checks in a total exceeding the large balance, and since these other checks cleared before the dealer's check got there (and after his phone call) the bank had no choice but to return it. The dealer was so mad that he sued the bank.
In his lawsuit, the dealer claimed the bank was liable to him since it had misrepresented the check was good on the phone. He lost this lawsuit. The court determined the bank did absolutely nothing wrong since, when it told the dealer the check was good, it was. This type of inquiry does not in any way obligate the bank to set aside the funds asked about to ensure the check will clear. Its only obligation is to tell you if the check is good or no good at that very instant.
The legal concept involved here is referred to as "acceptance." Once a bank accepts an item, it becomes obligated to pay it not matter what. By certifying a check a bank may be said to be accepting it. A bank cannot be forced to pay on a check until it has properly accepted it.
Another dealer we've heard about, when faced with a similar situation, did something a little unusual. He got his customer's bank involved to the point where, after verifying with the customer the goods were ordered and the price was agreed upon, it actually called back the dealer and told him it would in fact, honor the personal check that would be given at the time of delivery.
The delivery was made, the check was deposited and, just as you've probably guessed, a few days later the check was returned, unpaid to the dealer. This time the notification attached to the check was marked "stopped payment." Here again our extremely angry dealer was forced to take the bank to court. His case appeared to be a little stronger.
Here the bank had actually told him not only was the check good at the time of the conversation, but also that it would be paid when presented.
The judge asked, "So what?" The law is quite clear. A bank can only be held responsible if it has accepted the check. An "acceptance," to be effective, "must be written on the check." Since this dealer had nothing in writing, no matter how many "equitable" legal theories he tried, he could not win.
Next time you can bet both of these dealers will take the time and the trouble to get the bank to put its assurance in writing, preferably in the form of a certification on the check. In these transactions, and in just about all other transactions, if someone is willing to agree to something, he should be willing to put it in writing and sign his name to it. If you don't get this, you may very well not actually have the agreement you think you do.