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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.

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    I wrote checks to company A and company B - you wrote different checks to each, or you wrote one check to both companies with "and"? If the latter - why? It would be highly unlikely for two companies to have a joint account.
    – littleadv
    May 14 at 1:48
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    Was the cheque crossed? Did it have ‘not negotiable’ on it?
    – user207421
    May 14 at 15:37
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    @littleadv I wrote two different checks, one to each company. May 14 at 19:23
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    @trueCamelType then your attorney is going to have them both for breakfast, get some popcorn and enjoy the show.
    – littleadv
    May 14 at 19:55
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    What country are you in? May 15 at 15:01

3 Answers 3

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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.)

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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.

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    Also, as @keshlam suggested - the bank which cashed the check may also be liable
    – littleadv
    May 14 at 1:10
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    I imagine that the argument is something like "all OP's payments went to Company A and they're bankrupt so can't return the funds. Company B shouldn't have to pay back money taken by Company A." But if the contract was with Company B (we don't know) and the contractor accepted payment made out to Company B (they clearly did, even if they deposited the money to A), then Company B will be liable and can have its assets seized.
    – Ben Voigt
    May 14 at 17:10
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    @Joshua that would mean that company B accepted the payment. I think the scheme the contractor is running is that all the payments go to A and it is the one liable, while it has no assets to seize if it is sued.
    – littleadv
    May 14 at 19:57
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    @littleadv: Which is clearly preposterous. Company B cannot disclaim liability for a payment simply by endorsing it over to company A. The payment was in fact made out to B, and B presumably accepted the payment at the time, so now B is liable for either returning the payment or providing the good/service that was contracted for. It would be crazy if you could just hand somebody else's money over to a third party and magically not be held responsible for it.
    – Kevin
    May 14 at 23:42
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    @Kevin right, exactly, that's why that's not what they did. Instead, they changed the original payee, so company B was never actually paid.
    – littleadv
    May 15 at 0:02
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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.

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    Checks are endorsed over to a third party by a specific phrasing written on the back of the check and accompanied by a confirmable signature from the intermediate holder. In that specific manner, they are negotiable -- subject to the rules of the banks involved -- but the recipient must sign it over, not just deface the "to" line. You have a valid point, but I don't believe it applies in this case as described.
    – keshlam
    May 15 at 22:31
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    The problem is not that it was transferred by the original payee, but that the original payee has been changed without authorization
    – littleadv
    May 15 at 22:52
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    Also, you seem to be describing the situation from a perspective of a European. In the US it is radically different. There's no concept of "cross", or IBAN, or easy and quick wire transfers, and checks are very much in heavy use.
    – littleadv
    May 15 at 23:09
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    (This is one reason I pay extra for duplicate checks. Physical evidence of what I actually wrote, should I need it. They're also more convenient for me to transcribe ledger from later than stubs were.)
    – keshlam
    May 16 at 0:04
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    Is this really how most cheques work in the UK? My layman’s understanding (as I learned growing up in the 80s/90s, when cheques were still useful fairly often) is that a cheque made out to “bearer” did indeed function like this, but that a cheque made out to a specified payee (which was much more common) wasn’t transferable. The Wikipedia article you link seems to fit this, listing “bearer” and “cash” cheques specifically as examples of negotiable instruments. I can well believe my layman’s understanding may be incorrect, but I’d like to see sources. May 16 at 22:15

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