My example is this:

Customer writes a check for $600 to John Smith. John Smith attempts to cash the check and is unable to do so as funds are not available. At some point later, he lowers the amount of the check to $500 and attempts to cash the check. He successfully cashes the check for $500.

The customer admits to have written the check for $600 but complains that the check was altered and asserts that the bank is liable to him for $500 as the check should not have been negotiated at all.

Had Mr. Smith RAISED the check from $100 to $500, the paying bank would obviously be liable for the difference, owing their customer $400.

In this case, however, the amount was LOWERED by $100. Is the bank liable to the customer and if so, for how much?

Disclaimer: I have searched through Brady and can't find much of a citation, other than recognizing that lowering the amount does qualify as a "material alteration". I have searched through OSCN.net, but I have not yet been able to locate anything that shows this example. My next step is this one.

Thanks for any help you can offer.

Jeremy

You are probably liable for damages. But since the customer is only out of pocket $500 on a "contract" to pay $600, they were not damaged.

Al

Al,

That has been my opinion, and that is what I've gotten from one bank and one member of the OK Bankers' Association so far. I'm still digging to try to find a citation, either in UCC or in a court case addressing it, but I've been unsuccessful so far.

Thanks for your input.

Pup, you know I am not a laywer...I am guessing that the alteration invalidates the instrument. However, it also does not seem your customer is owed damages because he delilvered the unaltered instrument to the payee intending payment of the full amount. This is pretty interesting. You must let us know the outcome.

The instrument is always valid for the original amount and intent. Prudence would suggest that a bank should require the check be re-issued rather than accept it, but from what I've seen, the check is always valid for the original amount if it has been netotiated. The amount of loss to the customer is what is passed on to the bank which negotiated it.

Said differently, the drawer is liable on the instrument according to its original tenor; alteration by a third party does not void the item. Your customer does not have any basis for complaining that you only took $500 instead of $600 out of his account.

When it comes to the issue of damages your customer was simply not hurt.

Ken,

Thank you for responding. I've heard from enough bankers, both on this thread and by me making phone calls soliciting their opinions, who have all said the same thing as I had said originally. I'm going to go with it.

BTW, fantastic conference. Having never heard you speak and having never met you or seen you give a lecture in person, we were all very impressed with the way you presented your sections. We attended the live stream conference, and although I with I had been there in person, I really enjoyed it and took quite a bit from it. As a sidenote, the networking could have been better.