There are countless business practices and laws in place today that slowly evolved into their present form. As a result, they don’t make a whole lot of sense without some kind of context. One such peculiar concept is the post-dated check. In theory, you can authorize future payments for services rendered or preclude a withdrawal on your account until you’re sure the funds will be in place. Unfortunately, the theory doesn’t even remotely match up with reality, and misunderstandings about funding can make or break your business.
Can a post-dated check be cashed early?
Unequivocally, the answer is yes. The date on your check doesn’t really mean much, though the laws vary from country to country. In the United States, according to the Office of the Comptroller of the Currency, “National banks are permitted to pay checks even though the payment occurs prior to the date of the check. A check is a negotiable instrument – the payee, the person to whom the check is written, may negotiate it through the banking system at any time.”
It is possible to inform your bank not to pay on a check before a certain date, but each institution has different rules regarding how that communication must be made. As a general rule, written communication is acceptable until the date on the check, while a verbal request is only good 14 days. Unless you can prove that you communicated your wishes to your financial institution properly, there is little recourse to be sought from the bank should the check be cashed early.
How can I recover damages incurred from a cashed post-dated check?’
Like we said, recovering damages from your financial institution is usually a non-starter unless you have documented communication regarding a particular check. The Office of the Comptroller of the Currency has this to say: “If you have incurred damages because a check has been negotiated before its date, you should directly pursue the payee for restoration.” Unfortunately, it’s rarely as simple as a phone call. If a cashed check caused damages for your company, it’s likely that those damages will be extensive and, generally speaking, expensive.
Alex Gertsburg is a managing partner at Gertsburg Licata. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
