Altering Bank Cheques

[Arrods]

Son's company paid in cheque to a bank who told him to add the word 'Ltd' in they payee line, which was the correct title of the company. Was told that, if the company's name was incorrect, the other company could avoid payment if it subsequently folded. Anyone heard of/had any experience of this? Thanks.

[bednobs]

what other company? You only mentioned your son's company

[fiction-factory]

I assume the cheque was from another company and was made out to LittleArrods rather than LittleArrods Ltd

[fiction-factory]

I'm sure this sort of thing happes quite a bit but I have a feeling it could be considered to be fraud if the company who wrote the cheque made an issue of it. Really the cheque should have been returned for correction by the payer. But if the bank suggested it maybe it's okay and at least your son's company could have a fraud defence

[AKMild]

If a bank accepts a cheque for the credit of a customer's account when the cheque concerned is not made out to the exact name of the receiving account then the bank could be guilty of what is known as 'conversion', whereby funds intended for one entity are paid into the account of another. If the cheque needs altering, due to genuine error, it should be the drawer of the cheque that alters it, since it could be held as fraud if someone else were to do it and the funds ended up in the wrong entity's account. There are businesses out there who quite legitimately conduct some of their business through a sole trader account and some through a limited company. For instance, a garage business might put its car repair business through 'ABC Garages Limited' and its petrol sales through 'Joe Bloggs trading as ABC Garages'. These are two separate legal entities, so if a cheque were payable to 'ABC Garages', then it could only be paid into the account of 'Joe Bloggs trading as ABC Garages'. It would have to be made payable to 'ABC Garages Limited (or Ltd)' in order to go through the limited company account. I imagine that in the case of your son's company, the cheque was missing the word 'Limited', and the bank was trying to be helpful in order that your son's company account could be credited with the cheque. However, in doing so, they would have put your son's company at risk of being accused of fraud by altering the cheque. They should really have advised him to obtain a replacement cheque or had the drawer add the word 'Limited' and initial the alteration.

There are instances where a cheque payable to one party can be legally banked into another account, by way of an endorsement by the payee on the back of the cheque, such as "Pay ABC Garages Limited", but most cheques are printed with the words "Account Payee Only" or "A/C Payee" between the crossing (two vertical lines on the front of the cheque), which legally has the effect of preventing the money going into anyone's account apart from the payee's.

If the cheque had been paid into your son's company's account without the word 'Limited' being added, it would be possible for the drawer to challenge payment on the grounds of conversion. The drawer does not have to have folded for this to happen.

As you do not mention the amount involved, I would add that in the case of very modest amounts, a bank might be happy to shoulder the risk of being accused of conversion, since it will know its customer, its trading style and its usual business practices and they may take the view that it would be more trouble than it is worth to have the cheque altered by the drawer.

[Jackdaw33]

When I first opened a bank account in 1970 cheques were printed uncrossed. You had to physically cross the cheque with two diagonal lines and write 'A/C Payee only', otherwise anyone could present it at the bank and demand cash.

[Jackdaw33]

I have just come across my chequebook. I have only written three cheques in three years. Before the days of ATMs and debit cards I would have gone through an entire chequebook in a month. How times have changed.

[Arrods]

Many thanks for all the comments. (I'm currently on holiday in the Far East 7 hours ahead - hence the delay in responding.)

Son's company has a good relationship with his bank. He provides a service to others (companies as well as individuals) with invoices averaging £2-3k. The company's name is unique and I suspect that any omission of the word 'Ltd' will either be accidental, in which case I can't see any legitimate client complaining about the alteration (especially as the bank suggested it) or fraudulent, in which case that company would have to explain why it left off the word 'Ltd'. It would certainly be a faff to return the cheque to the drawer for correction.

Fortunately, most payments are made via BACS. In the light of the above, I don't think he will need to do anything more than perhaps making it clearer on his invoices as to the correct title - and hope for the best. After all, this was just one bank pointing out on one occasion as to a potential problem.

Thanks again for all your comments.