Checking Account Essentials: Types, Benefits, and Responsibilities

Posted on Nov 23, 2024 in Law & Jurisprudence

Who Can Open a Checking Account?

A natural person or legal entity. While a person can open an account, the decision ultimately rests with each bank based on its trade policies and the background of the applicant. A legally constituted company, with duly empowered representatives, can also open an account.

Types of Checking Accounts

Single-person: The owner is a single individual with sole authority to write checks.

Two-person: Two owners must agree to operate the account jointly or individually, depending on the account agreement.

Multi-person: Ownership involves more than two individuals.

What is a Check?

Legally, a check is a written order issued to a bank to pay a specified amount from the drawer’s account funds.

Parties Involved in a Check

Drawer: The person issuing the check.

Drawee: The bank issuing and paying the check against the account holder’s funds.

Beneficiary: The person to whom the check is payable.

Benefits of Using Checks

  • Facilitates large transactions.
  • Lost checks do not necessarily represent a financial loss.
  • Enables term buying.
  • Identifies a specific beneficiary and drawer.
  • Offers unlimited funding potential.

Check Classifications (Article 10)

1. Bearer Check: Payable to the person possessing it at the time of collection.

2. Payable to Order Check: The “bearer” clause is deleted, but it can be endorsed. Ownership transfers by endorsement, requiring the recipient’s signature on the back.

3. Nominative Check: Both “bearer” and “order” clauses are deleted. It cannot be endorsed and is payable only to the named beneficiary.

4. Cross Check: Marked with two parallel lines, indicating it must be deposited or collected through a bank, not paid directly over the counter.

Types of Cross Checks

General Cross Check: No specific bank is indicated between the parallel lines.

Special Cross Check: A specific bank’s name is indicated between the parallel lines.

Check Features

  • Payable on demand and transferable by endorsement.
  • Can be cashed locally or remotely.
  • Has an expiration date but can be renewed.
  • A check payable to a non-existent entity is invalid.
  • Legally requires the amount to be expressed in both numbers and letters.
  • Does not legally require the owner’s name or account number.
  • Post-dating a check is not provided for.

Duties and Obligations

Drawer

  1. Must maintain sufficient funds in the account.
  2. Is responsible for forged signatures in their check series unless visibly disputed.
  3. Is liable for losses due to forged checks if negligent.
  4. Should keep checkbook records for six months after account reconciliation.
  5. Must avoid duplicate, altered, or illegible checks.
  6. Must express the amount in words and numbers and indicate the issue date.

Beneficiary

  1. Must present the check for collection within sixty days locally or ninety days elsewhere.
  2. The timeframe is three months for checks from abroad.
  3. Failure to claim payment within the prescribed period forfeits action against endorsers.
  4. Failure to claim payment may forfeit action against the drawer if the drawer’s actions impede payment.
  5. These limits are extended by the number of days a bank is suspended.

Bank

  1. Must pay the check on demand.
  2. Is not obligated to pay checks presented after the deadline.
  3. Cannot return an accepted check to the presenter.

Grounds for Non-Payment

  1. Insufficient funds.
  2. Stop payment order or bankruptcy.
  3. Funds seized by court order.
  4. Expired check.
  5. Signature discrepancies.

Stop Payment Order

  1. A mandate from the drawer to the bank to refrain from paying a check.
  2. Must be issued by the drawer.
  3. Must be in writing.
  4. Must be received before the bank pays the check.
  5. Only permissible in legally specified cases:
    • Forged drawer signature.
    • Lost, stolen, or robbed check.
    • Altered check.