Having a checking account allows you to carry out transactions without handling cash. Paper checks are written to draw money from these checking accounts directly. Individuals may acquire paper checks from your local banking branch. The payer writes the recipient’s name on the check and signs the relevant position to transact. There are a few legal considerations to consider when writing a check.
1- Required Fields
For a check to become a legal contract, all the necessary fields must be correctly filled. Some checks are available with the standard information already printed. They may also contain essential check lines and payer account information. Legally, a complete check includes a precise date, payee name, authorized signature, and transaction amounts in words and numerals. A check may not be honored if the necessary fields are not correctly filled and signed.
2- Incomplete Instruments
A check is considered incomplete when signed by the authorized signatory but has no information in the necessary fields. As such, the drawer may not have filled in the payee’s name, amount, and date. When such an incomplete instrument is handed over to a payee, the payee can complete the check unless advised otherwise. This sentiment shows that while the authorized signatory can only sign the check, it can be completed by an unintended party for an unintended amount. Therefore, it would be commendable to avoid signing blank checks given the apparent liabilities.
3- Authorized Signatures
Only the authorized signatories can sign and authenticate a check. For personal accounts, this could be the account owner. Businesses and organizations may delegate this role to an authorized party. These authorized parties should beware of giving incomplete checks. It would be good to note that a check may not be honored if the presented signature does not match the authorized signatory’s or meet the set signing instructions. Forging and faking these signatures may be considered fraudulent and is punishable by law. Some signing instructions may call for dual signatures to limit liability.
4- Contractual Instruments
Checks are considered money contracts. Checks will typically have the phrase ‘pay to the order of’ on their front face. This phrase gives the payee authority to present the check to a third party, usually their preferred bank. This third party is often protected against contractual changes. In case of any contractual conflicts between the payer and payee, the payer may issue a stop payment order. The drawer should give this order before the full payment is issued. A late stop payment order may call for a lawsuit to facilitate the return of deducted funds.
5- Bad Checks
It would be good to note that intentionally writing a bad check is a criminal offense, punishable by law, in many areas. Bad checks are those drawn on accounts that do not exist or those with inadequate funds. When presented to a bank, a bad check will bounce. A bank would typically charge a penalty fee to individuals who write bad checks. A check is meant to guarantee the payee payment as you have adequate funds in your account. Writing bad checks breaches this IOU contract. Legally, they may not prosecute a postdated bad check. This sentiment is attributed to the check promising payment in the future, regardless of fund availability in the account.