"Protesting" Checks

Question: We have a customer who wants to "protest a check." Can you explain this?

Answer: I haven't heard that term for many years. Protesting a check is seldom done any more, since the revision of the Uniform Commercial Code.

The UCC provides that a check is "dishonored" when "a necessary or optional presentment is duly made and due acceptance or payment is refused or cannot be obtained within the prescribed time or in case of bank collections, the instrument is seasonably returned by the midnight deadline..." Section 3-507(1)(a) The "midnight deadline" is midnight of the day following receipt of the item by the drawee bank. Section 4-301(1), 40194(1)(h) When the check is presented for payment, no problem arises under the UCC as to what constitutes dishonor.

However, suppose the holder of a check requests the drawee bank to cash the check, or requests a cashiers check for it. If the bank refuses, this amounts to a dishonor of the check, paving the way for a lawsuit on the check by the holder against the drawer. But you have no proof of the bank's refusal.

For example, you receive a check from me, dated today, for $400,000 for a fleet of cars I'm buying from you. I'm going to sell the cars at a profit. So give me the keys and the titles, and I'll be on my way. You have my check.

But you're cautious. You first take my check to my bank and ask them to give you a cashier's check for it. They refuse. That refusal is a dishonor of the check.

You go and get a notary public and take him/her to the bank. There you get a signed affidavit signed by an officer of the bank stating that the check was no good when it was presented for payment, and advising the reason for refusal. If it had been put through the work, it would simply be stamped NSF and returned - dishonored. You don't have the time for that, so you go through this procedure instead, walking away from the bank with the affidavit and the original check. You have "protested" the check. You now have a legal right to refuse to deliver the cars, or to block their delivery, and also reason to sue me and/or cause my arrest for giving you a bad check.

You can see why we seldom see this anymore. Because of advancements in the technology and procedures of handling the collection of checks and drafts, protest is no longer required except for drafts drawn or payable outside the United States. It is still occasionally used in commercial functions. The UCC, however, dispenses with the need for formal protest on all domestic checks and drafts. Section 3-505

Many thanks for the considerable help with this response given by Mark Hargrave, Esq, from Shook, Hardy and Bacon LLP in Kansas City, MO.

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 1, 1/02