Damages for bad checks
BANK ERRORMost of us have received a bad check at one time or another, perhaps a check written on a closed account or on an account with insufficient funds. The maker tells you “it’s a bank error – put it through again,” and you do, and the check comes back marked “insufficient funds” or “closed account.”If you refer the matter to the local district attorney’s office for criminal prosecution, more often than not, you will be told “This is a civil matter. Confer with an attorney.” That’s no help, I am an attorney!WHAT TO DO?As is always the case, right or wrong, California has a statute to address the problem. Civil Code 1719 provides recourse to get your money back plus treble damages.Section 1719 makes a person responsible for passing a check for “insufficient funds” for the amount of the check, plus damages equal to treble that amount (not less than $100 nor more than $1500).SECTION 1719Here’s how it works. If you receive a bad check, send a demand for payment by certified mail informing the check writer of: (1) the requirements of Sect. 1719 (enclose a copy of the Code), (2) the amount of the check, and; (3) the amount of a service charge not to exceed $25 for the first check or $35 for each subsequent check.If the person does not make good on the check, pay the service charge and the costs to mail the written demand for payment (whatever that is), within 30 days of mailing the demand for payment, then the person instead is liable for the amount of the check, and damages equal to treble that amount, not less than $100 nor more than $1500.A $200 bad check will result in damages of $600 plus $200. Interestingly, if the check writer becomes liable for the check plus treble damages, he or she is no longer liable for the service charge and cost to mail the written demand. Even more interesting, the Code does not specify how the check writer is supposed to know the costs of mailing the demand for payment.The next step is to file an action for recovery of the amount of the check plus treble damages. Section 1719 recites that a cause of action may be brought in small claims court not to exceed the jurisdiction of the court, which in California is $5,000. The remedy requirements of Sect. 1719 are mandatory upon the court and in addition to the rights of the parties under the Uniform Commercial Code.The statute clarifies that “insufficient funds” includes lack of funds, lack of an account by the maker, and a check with stop payment ordered by the maker.STOP PAYMENT WRINKLESection 1719 addresses in detail the situation where a maker stops payment on a check. A maker who requests stop payment on the check is not liable for the service charge, cost to mail the written demand or treble damages if the cause of the stop payment is existence of a good faith dispute as determined by the trier of fact, which is defined to be a reasonable belief of legal entitlement to withhold payment, such as: services were not rendered, goods were not delivered, goods or services purchased were faulty, not as promised, or otherwise unsatisfactory, or there was an overcharge.In the case of a stop payment, the notice to the maker is different and more specific than the notice to the maker of a bad check due to insufficient funds or no account, although the 30 day response time is the same.TWO CASESThere are very few cases interpreting Sect. 1719, probably because the bad check remedies are not sufficient to justify expensive litigation; however, Mr. Mughrabie, owner of a small market in Southern California who cashed 35 payroll checks of Suzuki Landscaping, just before Suzuki filed bankruptcy, was incensed enough to take his case all the way to the Court of Appeal.In Mughrabie v. Suzuki, (1988) 197 Cal.App.3d 1212, the court held the endorser of bad checks liable, i.e., the employees. It did not hurt Mr. Mughrabie’s case that many of the employees of Suzuki Landscaping who had endorsed checks to him were also owners of Suzuki Landscaping.In another case, an attorney unwittingly almost got stung by Sect. 1719. The attorney had represented settlement debtors, who gave him checks as partial payment of a settlement. The attorney placed the checks in his client trust account, ascertained that his clients, the debtors, had sufficient funds in their accounts to cover the checks and drew and delivered a trust account check to the creditors. Before the attorney’s check cleared, the debtors (cruelly) stopped payment on their checks to the attorney causing the trust account check to bounce.Fortunately, the attorney was found not liable on his check, despite the mandatory language of 1719, because he was an agent for transferring money and was allowed to prove he had no enforceable obligation to pay the check under the Uniform Commercial Code. Cohen v. Disner (1995) 36 Cal.App.4th 855.SHOW ME THE MONEYThe most difficult part of Sect. 1719 is not how to get a judgment for the bad check plus treble damages; the most difficult part is to collect the money. But what else is new.Jim Porter is an attorney with Porter _ Simon, with offices in Truckee and Reno.
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Kelley R. Carroll, a certified specialist, handles estate planning and will contests in our office with the help of our firm’s litigation department. I do not handle any, be forewarned.