The Unsigned Check

Question

Berel paid the grocery bill with a check. A few days
later, he receives a call from the owner informing him that the bank
returned the check since it was unsigned. Berel hurries down to the
grocery and signs the check. Both Berel’s account and the grocer’s account
were charged for the failed transaction. Who is liable for these charges?
Do we say that Berel is liable for failing to sign the check or that the
grocer is (also) liable for not examining the check prior to deposit?


Answer

What is the meaning of paying by check? When a person
gives a check in payment for goods, services, etc. he is stating that the
check is in order. He is in fact making two statements: (1) there is
enough money in my bank account to cover this check; (2) the check is
written out correctly. It therefore follows that if payment of the check
is refused for lack of funds, the person who gave the check is liable for
all expenses caused. His implied promise that there was cover for the
check proved not to be true. What if there is a mistake in writing the
check? This could include the wrong date, sum in words not being the same
as the sum in figures and failure to sign the check, etc. Surely the
issuer of the check is saying, "This check is good. You can deposit
it without further examination,"? If this is true, one could argue
that the issuer of the check is also liable for all bank charges, both his
own and those of the recipient, since he should have checked the check
before handing it over. However, there is a difference between the two
cases. The recipient has no idea whether the giver of the check has
sufficient funds in his bank account. Indeed, he is not required to find
out this information. These facts are usually hidden from the recipient.
When it comes to a mistake in writing the check, the situation is
different. Since the recipient had the opportunity to examine the check
prior to deposit and it is usual for such a check to be made, he has to
bear the consequences of failure to make the check. He has to pay his own
bank charges. We can argue that the issuer was saying, "Whatever you
are unable to see or know is my responsibility. I say that the check is
good – but do not rely on me alone when it comes to obvious visible
mistakes!"

We can therefore conclude that Berel will have to pay
his own bank charges, but not those of the grocer. The grocer should have
examined the check for obvious mistakes before depositing it in the bank.

Let us imagine that the grocer had passed on the check
to a third party, for example, a supplier, and this supplier deposited it
in his bank account. The check was not honored since it was not signed.
Who would then have to pay the bank charges? Is not the grocer saying to
the supplier that the check he is giving him is valid? Perhaps he should
reimburse the supplier for his bank charges? We have stated above that two
people are responsible for the correct writing of the check; the writer of
the check and the person who deposits it in his bank account. Thus, Berel
would have to pay his own bank charges, since he wrote the check. The
supplier would have to bear his own bank charges, since he deposited the
check without prior examination. The grocer does not have to pay anything,
since he is neither the issuer of the check nor the depositor.

However, if the check had not been honored since there
were insufficient funds in the issuer’s bank account, the law would have
been different. We have mentioned above that whoever gives a check is in
fact vouching for the fact that it is a good check. Even if this is a
third party check, as in this latter case, he is guaranteeing that there
are funds in the bank. His undertaking is the basis for the recipient
accepting the check. No supplier is prepared to part with goods unless
payment is guaranteed. He is basically saying to the supplier, "Treat
this check as if it were to be drawn on my own bank account. Just as I
would be liable if it was not honored because of insufficient cover under
those circumstances, so do I accept liability for this check." He
would therefore be fully liable for any direct loss incurred by the
depositor as a result of insufficient funds.