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Non-customer Check Cashing

by Barbara Hurst, BOL Guru

Question: Is there anything in the Uniform Commercial Code that says you can refuse to cash checks for non-customers? Or that says you must honor those checks written by your customers even if the payee is a non-customer?

Answer: If the check is drawn on your financial institution, and if a non-customer complies with the requirements for presentment, the payor bank should honor the check, assuming that it is properly payable (i.e., is authorized by the holder of the account - usually evidenced by his signature on the check; there is no evidence of alteration; and enough funds are in the account to cover it.)

The UCC says, in Section 4-402, that if an item is properly payable, and the payor bank won't pay it, it is considered to have wrongfully dishonored the item and may be liable to its customer for damages proximately caused by the wrongful dishonor of an item. The key point here is that if the bank refuses to honor the check the non-customer payee has no standing to bring a claim against the bank. There is no contractual or other relationship between the bank and the payee that would serve as the source of any duty to cash the check. The only person who has a right to complain about the refusal to cash a check is the bank's own customer - the drawer.

But even here, the liability only applies if the dishonor is actually wrongful. If the bank has placed an appropriate provision in its deposit agreement, then the dishonor may not be wrongful depending on the facts and circumstances. You are permitted to vary your agreement with your customer, and your deposit agreement can address this issue.

In terms of presentment, one of the major requirements is that the payor bank must be able to identify the payee. Section 3-501(b) of the UCC indicates that the person making presentment must give reasonable identification. If they are not able to do so, the bank does not have to cash the check.

If the non-customer comes in with a check NOT drawn on your bank, there is currently nothing in the UCC or in federal law that would require you to cash it. It's only when the check they have is one drawn on your bank that you need to worry about accommodating their request (if the presentment requirements are met and the item is properly payable) or facing wrongful dishonor to your customer.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 5, 7/04

First published on 07/20/2004

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