Am I liable for a bounced check in this situation?

Question

John Smith writes me a check for $100. It is drawn out of John Smith's account with ABC Bank and the signature on the front is his (no issue of forgery). The check is made payable to me.

I sign the back of the check (nothing else). I give the check to a local store who cashes the check for me on the spot. The check ultimately bounces.

Do I have any liability for that?

Mark -- if you can email me, please do. I have a followup question.

Basically, I want to know if the provision basically means that the store could sue me as an endorser under the warrantor representations but only if they gave me notice within 30 days.

Answer 1

We are dealing with two separate issues here. The first issue is the issue of a check that was written that bounced. The store has no cause of action against you because it was a bad check.

The second issue is your liability as an endorser of the check under Article 4 of the Uniform Commercial Code. You do have liability under the transferr warranty. Under section 4-207 (b) of the code:

§ 4-207. TRANSFER WARRANTIES.

b) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item (i) according to the terms of the item at the time it was transferred, or (ii) if the transfer was of an incomplete item, according to its terms when completed as stated in Sections 3-115 and 3-407. The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subsection by an indorsement stating that it is made "without recourse" or otherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) are made and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item plus expenses and loss of interest incurred as a result of the breach.
(d) The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.
(e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

Answer 2

This wouldn't even be an issue if John Smith had overdraft protection on his account. I think you are liable because you gave the store the check, but they should have a better policy than to cash endorsed personal checks. However, I think the stores fee for the bounced check would apply to John Smith's bank account - but I'm not sure.

Answer 3

Absolutely. You're the person they gave the money to, you're the person they're going to get it back from. When you signed the check, you vouched for the initial writer of the check... so whether or not the check is good is an issue between the writer of the check and you... The third party (store) does not bear the burden of tracking down payment on a bad check when you vouched for the funds and they paid you.

Answer 4

Technically no, but the store could take you to court to hold you liable. However, what the hell are the chances of a store actually going through a long, expensive court process for such a small sum? However, if your figure was just an example, if they can prove you knew the check was bad then yes. However, if they cannot they must take it up with the originator of the check (The one who issued it to you), as they took the chance to cash it for you (That is the reason check cashiers charge a fee).

Answer 5

yep------------sorry but you bought the farm on this one-------hhhmmmmmmmmmmmm------what state are you in? this might vary state by state------guess we will find out here----huh?------I hope you are not held liable in your state----I did get burned like this in Illinois.