Pitfalls When Exchanging Corporate Checks For Cashier's Checks
by Ken Golliher, BOL Guru Guru Bios
QUESTION: When answering a recent question regarding cashing corporate checks, Mary Beth Guard, indicated she did not advocate exchanging corporate checks for cashier's checks. She indicated "that course of action is fraught with potential pitfalls". Can you elaborate on the pitfalls? It is a common banking practice to issue teller's checks (cashier's or official
checks) in lieu of corporate checks. The teller's checks are made payable exactly as the original corporate checks . The corporate checks are stamped with an endorsement "official check issued in lieu of this item" along with the official number. Thanks for your help in clarifying this matter. I would much rather hear the pitfalls from you rather than a judge!
ANSWER: Mary Beth can add her own comments, but I do not want it to appear that she is the "Lone Ranger" in questioning this practice.
While the Uniform Commercial Code allows banks to certify customer checks, it does not ratify, describe or even contemplate the practice of replacing customer checks with official checks. Banks that replace customer checks with official checks follow varying procedures; since the practice is without legal sanction, each bank composes its own attempt to achieve legitimacy.
As Mary Beth noted, there are pitfalls that banks should evaluate. However, it might be appropriate to first revisit their motivations for beginning the practice.
First, refusal to replace the customer's check is not wrongful dishonor. A bank is not even obligated to certify customers's check, let alone replace it with one of its own.
Second, the payee of the check is, more likely than not, a noncustomer who apparently felt the customer's check represented an acceptable method of payment when it was accepted. The payee may have since reached a different conclusion, but if the payee wants an official check, it can request the bank's customer to provide one, leaving the details of the business transaction between the appropriate parties.
Third, there is an established method to assure payment to the proper payee, certification. It is somewhat cumbersome, but offers an assured alternative where the noncustomer's depositary bank assures the payee's endorsement before the funds are removed from the customer's account.
Which brings us to the pitfalls. It is the bank's customer who may object to the practice after the fact. For example, the customer may have issued the check and then inspected the merchandise and found it defective. Alternatively, the customer realizes it has delivered the check to an imposter. Knowing the check was issued only hours before and there is no way it could have been presented, the customer comes to the bank to stop payment. He is told the check has already been paid. Someone gets to explain what gave the bank the right to do something like this. Good luck.
Balancing the desires of a noncustomer against those of a customer should be a simple exercise. The real question is why start the practice?
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