Sooner or later it happens to most of those in business. A customer or client will pay with a check that is returned for insufficient funds or due to the closing of the account before the check was delivered to the bank. Sometimes a stop payment has been placed on the check. The end result is the same for the victim: nonpayment of an invoice usually for goods or services already delivered.
What are the ramifications of engaging in such wrongful conduct? What relief is available for the victim aside from merely filing suit to collect on an unpaid invoice?
Is there any punishment that applies to the perpetrator who probably used bad faith to obtain the goods or services?
Those are the questions answered in this article.
BASIC LAW:
One who knowingly passes bad checks is guilty of a crime as well as possibly being liable civilly to the victim in an amount up to treble damages (up to one thousand five hundred dollars.) Lastly, it is possible that the plaintiff/victim could obtain punitive damages against the perpetrator.
Criminal Law Applicable
The reader is advised to read the article on this website on The American System of Criminal Justice for a full discussion of the criminal side of the American legal system.
Knowingly drawing or making any check for payment of money “…knowing at the time of such making, drawing, uttering or delivering that the maker or drawer or the corporation has not sufficient funds in or credit with said bank or depository or person or firm or corporation for the payment of such check, draft or order and all other checks, drafts or orders upon such funds then outstanding in full upon its presentation…is punishable by imprisonment in the country jail for not more than one year or in the state prison.”
If the crime is a first offense and the check is two hundred dollars or less, it is treated as a misdemeanor rather than a felony.
No express representation by the perpetrator as to amounts on hand is necessary; the mere fact of executing the check is treated as such fraudulent representation.
It is not unusual for the District Attorney to bring related charges of fraud or forgery if the circumstances warrant
Civil Law Applicable
Section 1719 of the California Civil Code provides that the passer of a bad check is not just liable to the victim for the amount of the check but for a relatively small service charge (twenty five dollars for the first check passed, thirty five dollars for each subsequent check) and treble damages for the amount of the check IF AND ONLY IF certain statutory steps are taken by the recipient of the bad check:
1. The victim must provide a written demand for payment by certified mail to the person who had passed the bad check and the written demand must inform the person of the provisions of Section 1719; the amount of the check; and the amount of the service charge payable to the victim. The person who passed the bad check has thirty days from the date of the written demand to pay the amount of the check and the amount of the service charge and the mailing costs for the written demand. If those are paid, no treble damages apply. Partial payments during that thirty day period do NOT resolve the problem. The statute provides,
If this person fails to pay in full the amount of the check, the service
charge payable to the payee, and the costs to mail the written demand
within this (30 day) period, this person shall then be liable instead
for the amount of the check, minus any partial payments made toward
the amount of the check or the service charges within 30 days of the
written demand, and damages equal to treble that amount, which shall not
be less than one hundred dollars nor more than one thousand five hundred
dollars. When a person becomes liable for treble damages for a check that
is the subject of a written demand, that person shall no longer be liable for
any service charges for that check and any costs to mail the written demand.
2. The perpetrator can avoid the treble damages and service charges if he or she presents to the victim written proof from the financial institution that the check was returned due to an error on the part of the financial institution or was based on delay in the normally scheduled transfer or posting of a direct deposit from social security or the government.
3. Lastly, if there is a good faith dispute between the bank and the perpetrator which resulted in a stop payment being placed by the perpetrator on the check, then the treble damages or service charges are only payable if the victim proves there was no good faith dispute by clear and convincing evidence. The burden is on the victim.
And cases have held that the court does NOT have discretion as to imposing the treble damages should the criteria above be achieved by the victim.
A form for the victim to use to give notice to the perpetrator is located in Section 1719 of the California Civil Code but the form is advised, not required. The essential elements of the form are to simply give the perpetrator notice of the above basic law.
Punitive damages may be assessed against the perpetrator as well if the victim can prove malice and intentional wrongdoing on the part of the perpetrator. See the web article on Torts: Negligent and Intentional. One would have to sue the perpetrator in court for fraud, conversion and possibly embezzlement to have a chance for such punitive damages, of course, but those would undoubtedly form part of the several causes of action that any plaintiff would bring.
PRACTICALITIES
Note that the above rights are not restricted to commercial establishments. Anyone who is the victim of a bad check can achieve those treble damages if they follow the guidelines above.
The goal of the law is not to get you your treble damages so much as to create overwhelming incentive on the part of the perpetrator to repay the victim quickly and without involvement of the court. This is also to your benefit since even treble damages will not repay you for your lost time and trouble and will certainly not compensate you for the cost of your attorney.
Ideally, most particularly if you are in the business of selling products, you will have created a series of terms and conditions on your invoices that will give you far more protection, including recovery of attorneys and court costs if you must sue. See the article on this web site on Terms & Conditions on Invoices for a full discussion of the provisions that will be far better protection than this statue.
However, assuming that you received the bad check without the protection of a good contract or invoices, this provision can at least cause some concern on the part of the perpetrator and if you are forced to go to Court, will give you a little more recovery assuming you have sent the right notice and complied strictly with the provisions described above.