I recently started some contract work for a client
who paid me one-half up front via check. I cashed the check at my
local bank, where I have a checking account and received the funds.
The check cleared. The client canceled the check three days after
I cashed it (I found out via a phone conversation a day later).
The client banks at a different bank. What will happen to the client's
account and my account? Will the funds be debited from my checking
account? What can I do if the canceling of the check after the fact
results in NSF activity on my account? Please give me as much detail
as possible. Thank you for your promptness.
-- Chris Cheque
You raise some interesting issues that make it a good letter for this
column. Let's start out by pointing out that the client is requesting
his bank to stop payment on, not cancel, the check.
The client's attempt to stop payment -- three days
after you've cashed it and the check has cleared -- can't work.
A bank can't stop payment on a check that it has paid. If the funds
were paid to you in error, then the client can request them back
from you, but the banks are out of the equation.
Banks typically have a hold-harmless provision on
their stop-payment forms stating that they can't guarantee the stop
payment until after a reasonable time has passed to allow the bank
time to circulate the stop-payment information through their branches.
With computer networks, banks can move quite rapidly to implement
a stop payment, but they can't turn back time. If you cashed it
and the client's bank paid it, the money is in your account and
out of the client's.
Your bank may have put a hold on the funds, depositing
them to your account, but not allowing you use of those funds for
a period of time. When a bank places a hold on deposited funds,
it is required to let the depositor know of the hold. Federal Reserve
CC describes bank requirements concerning holds on customer
accounts in greater detail. The hold is there to protect your bank.
If the check didn't clear because of a stop payment, and there was
a hold on the deposit, then you never had access to the funds. Checks
written against held deposits will bounce due to insufficient funds
and you are responsible for any insufficient-funds fees.
So what's key here is the timetable of events. When
did you deposit the funds? Was there a hold on the deposit? If so,
then how long was the hold? When was the check presented to the
client's bank for payment? Was the stop payment in effect before
the check was presented for payment?
To me, you've got bigger issues than trying to understand
bank procedures and check clearing. Why is the client trying to
stop payment? Why are you more concerned about the check clearing
than the work contract?