Is it illegal for a company to cross out the "To the order of" line on a check and change companies being paid?

Question

Long title, but I wasn't sure how else to put this. Basically, I paid a contractor to do some work. They have two companies, one with assets, and one with no assets. We'll call them:

• Company A: No assets
• Company B: Lots of assets

I wrote checks to company A and company B, but every time they went to cash the checks, they would scratch out my "TO THE ORDER OF: Company B" line on the check, and replace it with "Company A". Well, I didn't know this was happening, but now as you probably guessed, I'm probably in a lawsuit with them. 50% of my checks were supposed to go to Company B, but as I said, they just scratched them out. Some of these checks were "Official Checks" from the bank, where everything was typed out. It doesn't seem right that they can just change who the checks are written to.

I know this is a lawyer matter, and I have contacted a lawyer, I'm just a bit worried and wanted to see what was the general consensus on a site like this.

To be clear, both of these companies are owned by the same people, they just commit fraud under the name of company A and B, but only accept money to Company A....apparently by altering checks.

Answer 1

No bank should honor the altered check; changing the payee is not permitted any more than changing the amount. Complain to your bank; it's their responsibility to work with the other bank to reject that check.

What the contractor could have done was deposit the check as written and then written their own check to the second company, or possibly endorsed the check over to the second company if their bank was willing to accept that.

What they should probably have done was return the check to you and ask you for a new check written to the appropriate account name.

If you owe them payment (I presume you did or you wouldn't have written the check), you do still owe them the payment. But this was not the right way for them to try to collect it.

(To address the headline question: If you want legal opinions you can trust, pay for consultation with a lawyer. But as a semi-informed and worthless opinion: If they had tried to hide the change or make it appear to be your doing, that would presumably be fraud. Obviously altering it... I think that mostly qualifies as blatantly ignorant of how checks work.)

Answer 2

The short answer is: lawyer. The long answer is: yes, and also lawyer.

It doesn't matter who owns the businesses you're paying, they can't unilaterally decide that someone different gets paid. Imagine a situation where they decided that you didn't pay what you owed to Company B because Company B never received a check. Or let's say I'm the sole owner of Company X - I can't change the payment from my company to myself because "I'm going to send it from my business account to my personal account anyway so this saves a step".

And let's say that you were actually supposed to pay (per your contract) Company A and not Company B. Doesn't matter. They should've told you to stop payment on the check, returned or destroyed the undeposited check, and requested a new payment with the correct information.

Note that there is a possible exception: endorsing a check and assigning it to a third party. However, endorsing a check doesn't allow any alterations to the front of the check, only the endorsement section on the back.

Answer 3

No it is generally not illegal

We delve into the little understood law of negotiable instruments.

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. … The word "negotiable" refers to transferable and "instrument" refers to a document giving legal effect by the virtue of the law.

The key feature is that a negotiable instrument is transferable which mean the right to claim the payment(s) belongs to the holder in good faith - a term I’m not going to get into except to say it means someone who has the document and didn’t get it by nefarious means.

In modern usage, the most commonly known type of negotiable instrument is a government bond. The government promises to pay the coupon amount to whoever holds the bond when the coupon date comes around. However, historically, the most common kind was the cheque (or check).

The way it worked is like this. The lord of the manor has some work done and pays the contractor with a cheque for £1 drawn on a London bank. The contractor doesn’t have time to go to London so he negotiates to pay his timber supplier the 10 shillings he owes with the check and takes 10 shillings as change. The lumber mill owner, uses the check at the local store to buy provisions. The store owner uses it to buy stock. And so on. The £1 check drawn on the account of a very rich man that everybody in the local area knows is just as good as a £1 banknote. Eventually, someone is going to London and cashes the cheque. Or not. Or maybe someone uses it to pay their rent to the lord and he tears it up - being both the payer and the payee.

With the rise of modern banking systems, the ability for wire transfers, and the increased abundance of cash, this usage of cheques is uncommon - but it’s still legal.

Given your spelling of the word, I’m guessing you’re from the USA where the relevant law for checks and negotiable instruments is state based and usually but not always based Articles 3 and 4 of the Uniform Commercial Code (UCC).

There are ways of writing a check that make it not negotiable, but by default, they are freely transferrable.