Official Checks & Declaration of Loss
by Mary Beth Guard, BOL Guru
Question: I have two questions below. Some banks issue Official Checks and others issue Cashier's Checks. Is there a difference?
Here at our bank, we issue Cashier's Checks drawn on our bank. On the checks, we have the following wording:
NOTICE TO CUSTOMERS
The purchase of an Indemnity Bond will be required before any official check of this bank will be replaced or refunded in the event it is lost, misplaced or stolen.
Since it is no longer required that customers have to purchase an Indemnity Bond (we use Declaration of Loss), should the wording be removed from the face of the Cashier's Check? It seems like it should have some kind of wording though, to let the customers know to take extra precautions with these checks because there will be a delay for the replacement of this check, up to 90 days.
I looked through our proof work today and found some other banks issued Cashier's Checks and Official Checks. The banks that issued the Cashier's Checks had the Notice to Customers clause, the bank issued Official Checks did not have any wording on them.
Answer: You might want to modify the language you have in the notice to customers. The purpose of the modification would be to more accurately reflect the "danger" to the purchaser.
As you know, since you are in a state that has adopted Section 3-312 of the UCC (which allows a claim to be made on a lost, stolen, or destroyed cashier's check, teller's check, or certified check), there is a clear procedure for a customer to follow to file a declaration of loss and claim.
Once the claim becomes enforceable (90 days after the issuance or the date the claim is made, whichever is later), your bank is no longer obligated to pay the check if it should later be presented. You can safely refund the check amount to the customer (or issue a replacement item) once his claim becomes enforceable.
While it is true that if the customer is willing to wait for reimbursement under his declaration of loss under UCC 3-312 becomes effective, if the customer wants to get his money BEFORE the declaration of loss is deemed effective, it is still appropriate to require an indemnity bond to cover the bank for the period of time between when the money is given to the customer (or a new cashier's check is issued) and the time when the bank is legally off the hook -- i.e., when the declaration of loss becomes effective. So, it's misleading to say "the purchase of an Indemnity Bond will be required before any official check of this bank will be replaced or refunded in the event it is lost, misplaced or stolen", because if the customer is willing to wait until his claim becomes legally enforceable, you cannot require the indemnity bond.
A simple change of the word "will" to "may" would take care of it. The revised wording would read "The purchase of an Indemnity Bond may be required before any official check of this bank will be replaced or refunded in the event it is lost, misplaced or stolen."
You may also want to change "official check" to "cashier's check", since that is what you are issuing.
The Uniform Commercial Code does not define the term "official checks". How they are classified legally depends on how they work. If a bank is simply labeling its checks "Official Checks", but they are, in actuality, items drawn by the bank on an account maintained at the bank, they will legally be deemed cashier's checks. If they are drawn by the bank on an account maintained by the bank at another institution, they will fall within the definition of teller's checks. If they are drawn by a nonbank, they would be neither.
The original version appeared in the April 2003 edition of the Oklahoma Bankers Association Compliance Informer.
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