A check is dishonored when it is presented for payment to the payor bank (for situations other than immediate payment over the counter) and the bank makes timely return of the check or sends timely notice of dishonor or nonpayment.
Four possible problems may exist where there is dishonor or other nonpayment of a check by a bank and these problems are typically dealt with in the policy form given to new bank customers when they open an account:
Problems of dishonor or other return of unpaid checks probably embrace no more than .5% of all checks handled by banks for purposes of collection and payment and only about .025% in dollar amount of all checks handled. In addition, approximately 50% of all checks returned unpaid are eventually paid.
When a bank receives funds for deposit in a checking account, the bank impliedly agrees to honor proper orders or checks on the account, as long as the depositor's account has sufficient funds in it to cover payment. A bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. When the dishonor occurs through mistake liability is limited to actual damages proved. If caused and proved, damages may include damages for an arrest or prosecution of the customer or other consequential damages related to the writing and dishonoring of the check.
The predominant law on the subject (the Uniform Commercial Code) does not specifically deny the right to sue for punitive damages for dishonoring a check. Therefore, a number of courts allow a punitive damages claim for a bank customers providing the customer can show malicious behavior on the part of the bank.
Last Modified: 12-23-2013 02:20 PM PSTLaw Library Disclaimer
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