Even today, checks are often used in transactions to facilitate the transfer of funds and avoid the use of cash. But how does a check function as a negotiable instrument? Let’s explore in this text some very important characteristics of checks, particularly regarding the responsibility of the signatories. Additionally, we will explain in a simple and understandable manner the concepts of post-dated and bounced checks, which are commonly used in practice, though many do not understand their significance.

1.What are the characteristics of a check?

When we say check, we mean that negotiable document issued in a specific form, which, as it embodies a monetary claim, functions as a means of payment. The essence of the check lies in the fact that the debtor does not pay the creditor with cash but instead gives a payment order to the debtor’s bank, instructing it to pay the creditor upon presentation of the check document.

It is important to note that by law, when someone undertakes an obligation to pay by check, it is considered, unless otherwise agreed by the parties, that the creditor now has two claims against the debtor: one from the legal relationship that binds them (e.g., from the sale/loan/credit agreement they concluded) and an independent claim from the check delivered for collection. Thus, the creditor can use either of the two claims, but satisfaction from either claim simultaneously extinguishes the other, meaning they cannot be satisfied twice.

Another characteristic of the check is that it can be issued “to the bearer,” meaning to any person holding it at the time of its maturity, who can then present it to the bank for payment. This provision offers a convenience by law, avoiding the formalities required for transferring a check by endorsement, as the bank only needs to ensure the sequence of signatures on the back of the check is intact at the time of payment.

2.What must be included for it to be valid?

For a document to function as a check, the law requires it to include certain elements that confer upon it the nature of a check. These elements are strictly defined by law, and no additional elements are needed, nor can the parties agree to require additional elements for the validity of the check. Therefore, a check must:

• Include the term “check” prominently within the document.
• Contain a simple and clear payment order for a specific sum of money. It is important that the amount be clear, with no need for mathematical calculations, and no clauses stipulating interest that would apply to the amount.
• State the name of the person who will make the payment. Typically, the payer on a check is only a bank, which is obligated to pay it if the legal requirements are met and cannot refuse to accept the check.
• Indicate the place where payment will be made, although this is not decisive; if omitted, the check will be payable at the place it was issued (which may coincide with the issuer’s place of residence).
• State the date it was issued, as this is necessary to calculate the check’s maturity date.
• Clarify the place where it was issued, though this is not critical as it can be supplemented by another place noted on the check.
• Bear the issuer’s signature=events affecting the issuer after the check is drawn, such as being placed under judicial supervision, do not invalidate the check.

3.What if certain elements are missing?

It is possible that a check may lack some of the elements mentioned above. The rule here is that several elements of the check can be supplemented by others found on it, and this does not necessarily invalidate the check. For example, the place of payment and the place of issuance can be supplemented in the manner previously discussed.

However, there are elements of the check that cannot be supplemented. These are the remaining elements from the list we discussed in the previous question. Therefore, the designation “check” within the body of the document, the order to pay a specific amount, the issuer’s signature, etc., cannot be substituted by other elements, and if they are missing, the check is rendered invalid as a negotiable instrument.

It is different when the parties deliberately leave certain elements of the check blank and agree that they will fill them in later based on the agreement/contract they made. In this case, we have the phenomenon of a blank check, which is legally valid and does not cause problems, provided the necessary elements are filled in before the check is presented for payment at the bank. It is another matter what claims the parties may have against each other if someone fills in the check contrary to what was agreed (e.g., writing a payable amount of 100,000 euros instead of the agreed 10,000 euros).

4.Does the check have unique characteristics as a negotiable instrument?

Given the nature of the check as a means of payment, it is logical that it has some unique characteristics as a negotiable document that distinguish it from other negotiable instruments and adapt it to everyday transactions. Thus, the check:

• If not paid by the bank, does not require a protest to certify its non-payment (a notarized document required for other negotiable instruments when their non-payment is established). Instead, the bank immediately stamps the check through a quick process due to insufficient funds in the issuer’s account.
• Always matures with its presentation for payment at the designated bank. Additionally, the law provides an 8-day period from the date the check is issued for it to be presented for payment. If it is presented after this period, the bank can legally refuse to pay the check.
• Cannot be made payable to the issuer, meaning the issuer cannot use the check to pay themselves. However, there are exceptions to this rule, as various bank branches that issue checks to each other for fund transfers can legally use this practice since they essentially belong to the same bank, thus the same issuer.
• Does not require a specific document form to be drawn; it can be written on a simple piece of paper, not necessarily in the checkbook provided by the bank. In this case, the check is valid but the issuer may have violated their agreement with the bank to issue checks only from the provided checkbook.
• The bank is always the payer of the check and cannot act as a guarantor for its non-payment. Essentially, if this were allowed, the bank would be guaranteeing itself, which is not (legally) logical. Similarly, no one can guarantee that the bank will pay the check, as the bank is sufficiently solvent as the payer of the check with the existence of funds.

5.What is a post-dated check?

Regarding the maturity date of the check, it always matures upon presentation to the bank, which is when the beneficiary presents it at the bank branch’s counter and requests payment. Additionally, the law stipulates that the check matures 8 calendar days after the issuance date, e.g., if issued on 1/3/2024, the check will mature on 9/3/2024.

However, since the above period is quite short for transaction needs and almost always problematic, the parties have created a new legal construct: they simply state an issuance date on the check that is later than the actual issuance date, thereby extending the 8-day period provided by law for the check to mature. For example, the check may have been actually issued on 1/3/2024, but the parties may write a fictitious issuance date of 1/10/2024 so that the check formally matures on 9/10/2024.

It should be noted that this transaction practice is entirely legal and valid. Even the law indirectly accepts it, without explicitly stating so, to facilitate the transacting parties’ obvious need: to give the check issuer time to add funds to their bank account so that when the check is presented for payment, it does not get stamped as bounced, avoiding civil and criminal liabilities as we will see below.

6.Can I transfer the check to someone else?If so, how?

The law provides for three methods of transferring a check, each corresponding to the specific type of check, given that checks can be issued in various forms to meet transactional needs. Thus, the check can be transferred as follows:

• By Assignment (Common Assignment):This involves delivering the check to the transferee after the relevant agreement has been made. Additionally, notification of the assignment must be given to the debtor, which means informing the bank that it will be required to pay the amount of the check to another person. This method of transfer is valid only if a specific beneficiary/holder is explicitly named on the check.
• By Endorsement:This involves writing on the back of the check the phrase “Pay to the order of …(name of the new beneficiary).” The endorsement of the check is inherently possible and cannot be excluded by a clause the parties might set. Since multiple endorsements can be made on the check, if the back of the check is insufficient, the relevant notation can be made on an attached additional sheet.
• By Agreement and Delivery:This method involves agreeing that the check will be transferred to someone else and delivering it to the new holder, similar to how movable property is transferred in everyday life. For this method of transferring the check to be valid, the check must be made out to the bearer, meaning that anyone who holds the check at the time it matures and is presented for payment at the bank can collect the amount stated.

7.How should the payment of the check be made?

For the bank to pay the check, the law imposes certain conditions that the beneficiary of the check must meet. Firstly, the beneficiary must be the holder of the check, meaning they must possess it when presenting it for payment. If the check has been transferred multiple times, it must be evident that the signatures of the individuals who have signed are valid, i.e., they are not forged and the individuals had the legal capacity to undertake the obligation from the check, etc.

Additionally, the holder must present the check at a branch of the bank from which it was issued; practically, this can be done at any branch. This must be done within the specified period, i.e., within 8 days from the date of issuance stated on the check. The issuer of the check can revoke the check within this time frame, in which case the bank has the right to refuse payment to the holder. However, if the check has not been revoked, the bank is entitled, after notifying the issuer, to pay the check.

When paying the check, the bank will usually check if the issuer of the check is indeed its customer and if they have entered into a check agreement allowing the bank to charge their account through checks it pays. This, however, does not affect the beneficiary of the check, who may not know that the issuer had not entered into a check agreement with the bank=the bank will normally charge the amount to the issuer’s account, and any disputes will arise between them. If the check is paid by the bank, all other responsible parties for its payment, such as endorsers who had signed the check and thus had taken responsibility for its payment, are discharged.

8.What is the meaning of a bounced check?

This term is commonly used in everyday practice and simply means a check that is not paid by the bank, even though it is presented within the specified period, because there are no available funds in the issuer’s account. For this reason, if the issuer has legally revoked the check and the bank refuses its payment, the check is not considered bounced, and the consequences we will see below do not occur.

Issuing a bounced check is a criminal offense, punishable by at least 3 months of imprisonment and a monetary fine. However, to be prosecuted for this act, a complaint must be filed by the beneficiary of the unpaid check or anyone who paid the check by recourse. The offense is extinguished if the perpetrator fully compensates the beneficiary of the check or the one who paid before the case is heard in the competent court.

Moreover, issuing a bounced check constitutes a tort against the beneficiary of the check or the one who paid it, who can file a compensation lawsuit against the issuer. With this lawsuit, they can claim the full damage suffered (actual damage and lost profits if deemed valid) as well as the moral damage due to the nature of the tort. This lawsuit also has an advantage regarding the statute of limitations, as it is subject to a 5-year limitation period from when the beneficiary learned of the damage or from when the damaging event occurred, i.e., when the check was not paid due to lack of funds.

9.When do claims from a check become time-barred?

To ensure security in transactions and facilitate the circulation of checks, the law establishes short limitation periods for the claims parties have against each other. Thus:

• If the check is not paid by the bank (e.g., because it is marked as “bounced”), the claim of the beneficiary to seek payment from another responsible party by way of recourse expires in 6 months from the end of the presentation period = from the date of issuance of the check + 8 days.
• If the check is paid by another obligated party by recourse (because the bank did not pay and someone else paid the check’s beneficiary), the claim of the one who paid by recourse to seek payment from the next obligated party expires in 6 months from the date they paid the check or from the date they were informed they had to pay the check.
• The limitation period can be interruptedby well-known means we have discussed in other texts, such as by acknowledgment of the claim by the debtor, by filing a lawsuit, or issuing a payment order.
• Suspension of the limitation period is also possible, particularly if the beneficiary was prevented from asserting their claim from the check due to force majeure or if they were prevented by the debtor’s deceit.
• If the limitation period is interrupted or suspended, this fact benefits only the person for whom the interruption or suspension occurred=the limitation period continues to run normally for the others.

10.If I pay a check, do I have claims against someone else?

It is not uncommon for a check to go unpaid by the bank, which may raise defenses against the beneficiary, thus requiring the latter to seek payment from other obligated parties. This, however, is conditional upon the check being presented at maturity and in a timely manner to the bank, and non-payment being confirmed for any reason.

Thus, the beneficiary of the check can seek payment from those who have signed the check and are therefore liable for its payment (e.g., against endorsers, guarantors, the issuer) without following a specific order=they can go against one, and if not satisfied, pursue the next responsible party. It is significant that the law establishes joint and several liability for the obligated parties, meaning all are liable for the recourse payment of the check amount, unless one of them has excluded their liability with a relevant clause on the check.

However, to seek recourse against other obligated parties, the beneficiary must first confirm the refusal of payment of the check. This can be done either with a statement by the bank dated and placed on the check, practically referred to as “the check was stamped by the bank.” Another method is the drafting of a protest, a notarized document containing a faithful reproduction of the check, stating its non-payment. After these formalities, the beneficiary can claim from the obligated parties the amount of the unpaid check, interest on this amount from the initial presentation of the check when it was not paid, and any expenses incurred for drafting the protest or the dated bank statement.

Athina Kontogianni-Lawyer

The above does not constitute legal advice, and no responsibility is assumed for it. For more information, please contact us.