Freelancer's Question: A regular client of mine is a large organisation which I have been working with for several years. They sent me a payment by cheque in the post, which did not turn up on the expected date. I informed them immediately, and they chose to hang on rather than cancelling it straight away.
Now it turns out the funds have cleared their account, indicating the cheque has been stolen and fraudulently cashed by a third party. The client is now saying there is no prospect of my receiving the payment until it is investigated, which could take 8 weeks. They have given no indication that they will definitely re-issue the payment once they have confirmed it is fraud. Of course, they may only be intending to reissue it if the bank which cashed the cheque accepts liability and refunds the money.
Firstly, does them merely sending out the cheque legally constitute paying me? And secondly, assuming that the answer to the above question is no, am I entitled to act on the fact they are breaking the 30 day payment terms by not issuing a new cheque pending the potentially lengthy investigation?
Expert's Answer: Sometimes the law doesn't make any sense and I'm afraid to say that cheque fraud, such as this, is one of them.
The legal position is that, if you agreed with your client to pay you by cheque (and such an agreement can be implied by this being the usual way they pay you), then them simply posting the cheque, even if it never reached you, is deemed as good payment and they don't have to pay again!
Assuming that the cheque was crossed with the words "Account Payee", which is usual, then the cheque can only be paid into an account held by the person it was made out to, i.e. you.
Frauds such as this usually fall into one of two types:
1. the thief changes the name of the person to whom the cheque was
made out to; or
2. the thief opens an account using your name.
My advice is to wait for the conclusion of the investigation. If it shows that your client wrote the cheque in a sloppy way, making it easy to change the name, then you might be able to persuade them to pay you again.
If the investigation shows that the bank the cheque was paid into was
negligent, then it should pay you.
In order to open an account, banks have strict procedures they must follow to get identification and proof of address. If the thief has stolen your identity or forged identity documents, and it looked genuine to the bank the cheque was paid into, then the bank will not be held liable. If however, the bank failed to follow their procedure, then they will be potentially liable.
Lastly, if it was a case of the cheque being paid into a false account with your name and the bank refuse to pay out to you, your best recourse will be to make a complaint to the Financial Services Ombudsman. Your complaint would be that the bank was negligent in not taking sufficient steps to check the identity of the person opening the account.
The expert was Gary Cousins, of Cousins Business Law
Editorial image CarbonNYC
Jul 5, 2010
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