Writing Business Checks With Clauses?

Question

Every now and then, I'll receive a legitimate check in the mail with a warning that by endorsing it, I'll be agreeing to sign up for an insurance policy, a magazine subscription, or whatever else.

Anyone know about the legality of these checks or how I can begin writing them against my own business accounts?

I'm interested in offer $X for a lien, and mailing my check with the offer, with the stipulation that by cashing it, they are agreeing to assign lien to me.

Thoughts?

Gabriel

Keith Barton · Answer

If you REALLY want to know what you can or cannot do with regards to checks - lookup Article 3 (negotiable instruments) of the Uniform Commercial Code (UCC) as implemented by your state.

The UCC is a recommended model set of laws for governing commercial transactions. Each state has the authority to enact its own legislation governing commercial transactions, which means there can 50 different laws governing a certain type of transaction depending on what state you are in. To facilitate commerce, certain organizations combined efforts to create a set of laws that would represent "ideal" legislation to govern commercial transactions. It is still up to each state as to whether that state enacts the model UCC, or most of the model UCC, changing certain things to satisfy that particular state, etc....

Anyway, Article 3 governs negotiable instruments. Checks are negotiable instruments. §3-104 more specifically will give you more details....

Bill Gulley · Answer

I see problems goin down this road guys. First, what liens, what kinds of liens?

An assignment contract can not be put on a check or draft. For a proper assignment you will, for one thing, need to recite the subject property and that lien being assigned, I have never seen a draft big enough....LOL

The lien holder will have to execute the assignment agreement and endorse the instrument representing the lien, like a note.

Some liens can be acquired by law, like a tax lien or paying a materials lien depending on state law.

As to properly excuted drafts (checks) did you ever forget to sign a check and your bank honored and paid the check? Banks will generally pay any draft presented and if you read the signature card statements and your checking account agreement, you'll find that the bank is under no obligation to verify the validity or signature, not subject to fraudulent acts.

Use to be that a teller would actually look at a signature card in the "proofing" of a check and verify it was the same etc. not anymore if it passes through the affiliate check routing system (A draft on another bank deposited to a different bank account), signatures and endorsements are assumed to be proper and the transaction is in good faith.

In many instances, you could deposit that magazine check and cancell any subscription implied. Most people would not do that...depends on what state law. The UCC stipulates what a draft is as evidence of payment, not as to any conditions. If value has not been received, don't write a check!

Gabriel A. · Answer

Jeff,

My wishing to make this work serves two functions; neither of which is slimy IMO.

First, it reduces the seller's counterparty risk. He doesn't know who I am and has no reason to trust that I will send him the check after I receive the assignment of lien.

Second, it makes my offer more enticing. The only clause is that the lien is assigned to me for $x. No trickery whatsoever.

Keith Barton · Answer

I understood the original question as not attempting to pull a fast one on anybody. I understood the intention was to make the offer to buy the lien more attractive because the seller of the lien only has to deposit the check and the deal is done. If you are selling a car and 2 different people come to look at it at the same time.... 1 has cash in hand, the other says they have to wait until they get paid in 2 weeks - which one would you sell to?

Jeff S. · Answer

Am I the only one who finds this a slimy way of doing business?  What happened to a contract properly negotiated between parties, written in plain English, for all to read and sign in good faith?

Just because you can get someone to endorse a check with their signature doesn’t mean you can or should pile on additional terms.  If you don’t like the way the credit card and magazine companies do it, don’t do it yourself.

Jeff

Keith Barton · Answer

Bill - Good point about what liens we are talking about. I chastised a different post yesterday b/c posters were making assumptions about a certain set of facts that were not stated - and now I'm doing the same darn thing! Shame on me. I assumed we were talking about purchasing tax liens - but I shouldn't assume anything.

As for the bank honoring the check - I understood the OP to ask whether the "conditions" placed on the check would legally bind the payee to transfer the lien to the payor. I don't think there is any concern whatsoever about the bank honoring the check against the desire of the payor. The payor wants acceptance of the check by the payee to be a legally binding obligation to transfer the lien to the payor. In that situation, the check could theoretically constitute a binding contract (depending on what statutory requirements there are to transfer the type of lien contemplated...) if the payee presents the check (by depositing it, cashing it, assigning it, etc....) However, if the payee chooses to not honor the "sale" and keeps the $$$, the payor will have to sue the payee for breach of contract: prove a contract existed and everything else associated with a contract case; and, then if judgment is awarded, working to collect the judgment, etc....

Keith Barton · Answer

The best way to accomplish what you are thinking about (and while I say best - this does NOT mean it is actually going to work...) is not through a restrictive indorsement. Restrictive indorsements are the instructions on the back of the check stating things like "for deposit only" and some can be on the front of the check like "payment in full", etc....

However, a check is actually a type of contract. And, since a contract is (more or less) offer, acceptance, and consideration - it is theoretically possible to write contract terms on the check such as writing (above the line on which you write the recipient's name) something like the following: "Acceptance of this check constitutes [owner's] agreement to assign xyz lien to John Doe in exchange for the pruchase price of $X" You could also write that again on the back to make extra sure....

However, you should consult an expert in your local area to determine if this would work with your state's laws....

Jason S. · Answer

There is a legitimate business plan behind this but it would be prudent to seek the advice of an attorney and to investigate any cases that arose around the other organizations that have previously implemented such a program.

Gabriel A. · Answer

It seems as though restrictive endorsements are legitimate claims.  Like when paying a credit card, if I write a check and say "Full Payment for Account #XXXXXX" that's valid?

If so, couldn't I just write "Full Settlement For Assignment of Lien #..."  ??

Is there another way to send a cashable check with a restriction on it?  I feel that my offers are much more likely to be accepted if the seller can cash the check upon receipt/signing.

Gabriel

Jason S. · Answer

Whether the wording is enforceable or not, most bank will not honor a conditional endorsement and you need to have a special arrangement where you verify the endorsement before the item is paid.

I believe Beneficial finance or maybe Houselhold used this idea at one time (maybe mid 1990's) where they sent out $5,000-$10,000 checks and people that cashed them had an instant second mortgage, maybe it was unsecured, but the homeowners believed it was secured by their Real property.

Writing Business Checks With Clauses?

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