Hi

I run a company in Australia that regularly has to write cheques to American people or companies. Because there are a lot of cheques to be written, we get them pre-printed at A4 size, then run them through our printer to print the "pay to", and "sum of " fields, then I manually sign them.

Sometimes, the people we send cheques to say they cannot "cash" (presumably, they mean "bank") our cheques, while other people have no problem at all. The people who cannot cash them get quite angry with us, saying we're sending them bad cheques.

Here in Australia, you cross a cheque "not negotiable" if you want only the person / company named on the cheque to be able to bank it, and in fact I assumed that was a worldwide thing, especially as around half the people in the US we send cheques to have no problem with them.


So, in the US, when would you cross a cheque "non negotiable"? What happens if you do, vs do not?

Thanksabunch.

Hello there to our down-under friends!!

I think that you have a problem with a difference in the banking practices within the two nations and the meaning of the terminology.

In the US, there really isn't any method to require that a specific check be paid into someones account. In fact, all checks are consider negotiable in the US.

By placing the label on the check of "Not Negotiable" it would may lead the bank of the depositor to believe that it cannot expect that it will get paid for it upon presentment to your bank.

Most banks over here would not be familiar enough with the banking practices in your country to know any difference.

Therefore, the words "Not Negotiable" means two very diverse things in the two countries.

Hope this helps a little.

G'day Mate!

I would observe that Article 3-104(d) of the UCC states:

“A promise or order OTHER THAN A CHECK [my emphasis] is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable ….”

Therefore the UCC would seem to recognise a non-negotiable cheque. Also Article 3-201(a) states:

‘"Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.’

Therefore I cannot see any grounds for a U.S. banker to think the expression ‘not negotiable’ has any relevance to honour. Anyway, why not put ‘Not transferable’ on instead or -if you want really to confuse people- ‘Account payee’ as we do in the U.K.

It's obviously true that not all of the English-speaking world marches to the same drummer in matters of commercial law -- or orthography . I think it fair to say that not all banks in the United States have the level of knowledge of Australian banking practice that would be required to understand that "not negotiable" in Perth is not equivalent to "not negotiable" in New York.

The fact that more than half of the payees of our Australian friend's checks apparently have no problems with them may well be the result of their dealing with banks with international departments with some familiarity with customs Australian. But the vast majority of U.S. banks have no need for international departments, and might well be expected to look askance at verbiage that might appear, from their parochial perspectives, to make a document worthless.

The payroll notice I get - which looks exactly like a check, except for the fact that "non-negotiable" is watermarked across it - was always presumed by me to be marked in that way specifically to prevent me from depositing or cashing it. If I was a teller and saw the same notation on a foreign item prior to this posting, you can bet I would not have accepted it for deposit. (And even now I would say the appropriate way for our community bank to handle it would be to send it for collection.)

Anon, would it be possible to send a "fact sheet" the first time you pay a US vendor explaining how they should present the item to their banker?

Sorry if I’m being obtuse, but surely it is not a question of Australian banking practice not being known to U.S. bankers but of U.S. bankers failing to understand the correct meaning of ‘not negotiable’ in the context of UCC Article 3? As to the payroll notice alluded to above, it would seem the words ‘not negotiable’ are being used inappropriately.

Redcoat -- While there may be a distinct difference between the legal and common senses of the phrase "not negotiable," there can be no misunderstanding of the fact that a bank in the United States is under no obligation to either exchange a check not drawn upon itself for cash or to accept the same check for deposit. The practical result is that when checks that have been crossed "not negotiable" are encountered by U.S. bankers, it is to be expected that many would refuse to accept the checks, drawing upon their "common sense" of the phrase.

As for our Aussie friend's question, it is not a practice in the United States to "cross a [check]" (to borrow his phrase) to prevent the payee from exchanging the check for cash.

I'm sorry, but if something is "not negotiable" how could it NOT be understood that a holder would NOT have the ability to NEGOTIATE the item?

Let's stray just a bit from the UCC and study the definitions of the word:

negotiable
A adjective
1 assignable, conveyable, negotiable, transferable, transferrable

legally transferable to the ownership of another; "negotiable bonds"

2 negotiable, on_the_table

able to be negotiated or arranged by compromise; "negotiable demands"; "the proposal is still on the table"

3 negotiable

capable of being passed or negotiated; "a negotiable road"

When you put the word "not" before the word "negotiable", it just makes sense that the check is not to be cashed, passed, deposited, or in any other way NEGOTIATED.

I was going to let the matter drop (the expressions 'head' and 'brick wall' come to mind) but the posting immediately above has provoked me into further activity. Article 3.201a of the UCC says:

‘"Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.’

Therefore, ‘not negotiable’ on a cheque -in a state that has adopted the UCC- can ONLY mean that ‘transfer of possession’ is prohibited; and NOTHING ELSE (however the dictionary or everyday usage may treat the word ‘negotiable’ and thus ‘straying from the UCC’ is wholly inappropriate). I cannot see that the fact that ‘transfer of possession’ is prohibited is, of itself, any barrier to a bank collecting and crediting the proceeds of such a cheque to an account in the name of the payee. No doubt someone who actually understands the operation of negotiable instrument law in general and the UCC in particular will explain why it is, if in fact that is the case.

It certainly comes as a surprise to me that U.S. bankers would ‘draw upon their "common sense" of the phrase’ rather than its legal meaning. Clearly, the moral of this Antipodean story is that many U.S. cashiers do not receive any training in negotiable instrument law even though they -presumably- handle negotiable instruments ‘day-in day-out’.

Quote:

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‘"Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.’

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Redcoat - I believe your answer above explains it all. For example, Joe Smith writes a check to Fred Smith. Fred comes into my bank, Happy Bank, with this check that states "Not Negotiable" on this check. Fred would like to transfer the possession of this check from himself to Happy Bank, by either cashing it, transferring ownership to me in exchange for a cashiers check, or depositing the item into his account. However, Fred is not the original issuer of this check, and therefore cannot transfer ownership to Happy Bank. If Happy Bank were to cash or deposit this check, Happy Bank would now be the holder in due course (ownership) of this item, which Happy Bank is legally prevented from being, based on the "Not Negotiable" stamp.

An interesting Thread. When one marvels at the variety of dialects of our mother tongue, one can look to this exchange as an example of how even business usage can vary from place to place in the English-speaking world.

Hi guys. Thanks for responding.

Fraud Pup's post seems strange to me - applying dictionary definitions to any industry's terminology is always going to give you different meanings, right?

It seems like we should remove "not negotiable" from our cheques (luckily, we're due to order another batch of 2500 shortly!), but there are still a bunch of our "bad" cheques in circulation, so like Jokerman suggests, we'll add in a letter with some info on them.

Do you guys think it'd be rude to cite Article 3-104(d) of the UCC in this letter? The people we deal with could even take the letter in to the bank and show the teller!

Thanks again for the advice offerred.

I would not cite the UCC, as I think that Happygilmore did a fine job in explaining why redcoat's points don't hold water. An instrument in the US marked non-negotiable cannot be transferred to another holder. If you are not a holder, you have no rights under the UCC, so most US banks are not going to become involved.

Hello, it’s your old mate Redcoat again, still ploughing his lonely furrow from across the Atlantic.

Happygilmore, because it all revolves around ‘transfer of ownership’ I was very careful in my choice of words. I fully recognise that a bank that negotiated -i.e. gave value at the time of deposit- a non-negotiable cheque could not later claim to be its owner (presumably ‘holder’). However, I do not see this as a barrier to a bank sending the cheque to the drawee bank for payment and THEN crediting any proceeds received to the payee (a cheque ‘collection’?) as this does not involve any transfer of ownership, the collecting bank acting as the payee’s agent for collection of the proceeds.

Anyway, I think the fundamental difference in approach arises from the fact that in the U.K. -and I assume Australia, NZ and Canada- a collecting bank does not give any ‘warranties’ regarding the genuineness of anything. The banks even enjoy statutory protection against forged endorsements.

Thus, if an endorsement is forged on the reverse of a cheque there is -unlike in the U.S.- not any automatic right of ‘debit back’ by the drawee bank -against the relevant party’s affidavit- and, in fact, the likelihood is that the neither drawer or payee will have any rights against the collecting or paying (drawee) bank. Thus, to cut down the risk of fraud drawers try to prevent cheques from being transferable in the first place by placing restrictive crossings on them. In the U.K. it is ‘Account payee’. However, giving the provisions of U.S. law drawers do not -I assume- need to worry about this as if there is any fraud there is a well established and straight forward recovery system. Thus, the rarity of ‘crossings’ such as ‘not negotiable’ in the U.S. I assume.

Garionh, to make life easier, why do you not simply pay by international inter-bank transfer, rather than sending cheques? I’m sure in the long run you’d be better off and your suppliers certainly would.

Quote:

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I fully recognise that a bank that negotiated -i.e. gave value at the time of deposit- a non-negotiable cheque could not later claim to be its owner (presumably ‘holder’). However, I do not see this as a barrier to a bank sending the cheque to the drawee bank for payment and THEN crediting any proceeds received to the payee (a cheque ‘collection’?) as this does not involve any transfer of ownership, the collecting bank acting as the payee’s agent for collection of the proceeds.

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Why would I, as a bank, send any item for collection or payment when I am not a holder in due course and have no "ownership" rights. That is only asking for trouble for me down the road, especially when the item comes back 6 months later as a fraudulent item and my customer already has the funds. I've seen that happen on many foreign collection items.

As you can see, I'm a glutton for punishment.

Happygilmore, surely, if the item is ‘fraudulent’, ownership cannot -by definition- be transferred in the first place (unless there is a forged endorsement that falls within Articles 3-405/6 of the UCC)? Therefore, if you collect a ‘fraudulent’ item you can NEVER be a holder in due course nor EVER have any ownership rights, except where a cheque was genuinely endorsed by the payee and then fraudulently intercepted and paid in by a fraudster (see Article 3-302 of the UCC)and thus, in my opinion, should not be described as a 'fraudulent item'.

If you’re not familiar with the UCC provisions regarding negotiable instruments try http://www.law.cornell.edu/ucc/3/ .

OK - Redcoat - explain this to me without trying to quote the UCC every chance you get. Because, when push comes to shove - it means squat when dealing with foreign drawn items - both sides are not covered under the UCC.

Why would an American Bank accept such a check for deposit unless it has a long term and solid relationship with its customer. You are missing a big part of the equation - a bank can and does accept items occasionally like this for deposit from established customers (as cited in the original post), but for a new customer or one that carries small balances, the bank is looking for trouble (as Happy has pointed out).

US Banks have experience with foreign drawn checks coming back for months after deposit. Regardless of warranties and transfer rights and holders in due course, none of that does you any good if your customer is gone by the time the check comes back.

I don't blame any US Bank from balking at accepting any such labeled check for deposit regardless of what you may feel their legal rights are .

The original premise behind the post was why were these checks not readily accepted and I think a fine explanation has been given. I don't think we were looking for a legal analysis.

Dear Rlcarey,

The reason for my quoting the UCC was your original statement that “By placing the label on the check of "Not Negotiable" it would may lead the bank of the depositor to believe that it cannot expect that it will get paid for it upon presentment to your bank.” I simply could, and cannot, see any basis for a U.S. bank to have such a belief given the meaning of ‘negotiable’ in the context of negotiable instruments law in general or cheques law in particular and was hoping to illustrate this by reference to the UCC. In other words, I did not think -with the greatest respect- your explanation was logical and still hold that opinion.

I have to say I am surprised that “US Banks have experience with foreign drawn checks coming back for months after deposit”. I thought this was something just we poor old foreign bankers had to put up with when sending cheques to the U.S. (and the U.S. alone). My impression is that no country rivals the U.S. for the ability for someone to ‘come back’ well after payment for refund of a ‘fraudulent’ cheque. (Not that this is necessarily a bad thing.) Anyway, that’s by-the-bye.

The important point is that whether or not the cheque is marked ‘not negotiable’ should have no impact on the likelihood of it ‘coming back’ months after deposit, unless one is collecting the cheque for a party other than the named payee. Also, I would have thought you would take a separate agreement with the depositor, as we do, when handling a foreign cheque and therefore you would not be reliant on establishing one’s rights as a holder in due course to exercise recourse to the depositor.

I think I shall now ‘call time’ on this as otherwise I can see it going on and on. Been interesting ‘chatting’ to you all.

Toodlepip.

Aside from the other issues... Foreign check collection in the USA can take up to as much as 90 days with significant fees attached by our bank of deposit. Many are reluctant to accept foreign checks because of this, as well as the potential change in the exchange rate in that period of time.

You may be better served by opening a checking account with one of the international U.S. banks like Chase or Citi. You would want the account payable through a U.S. branch and payable in U.S. dollars. Nobody will have a problem accepting it.

Thanks again for the tips guys.

Sending international inter-bank transfers is what we do for most of the peoople we need to send money to, but the fees ($15US our fee, $18US intermediary bank fee, their own bank may also charge a fee) scare off smaller operators with whom we deal often (payouts of around $100US).

A non-US cheque has fees as well, of course, but usually $5 to $11US we have heard from the people we deal with.

Anyway, we have a new batch of cheques printed without "not negotiable" printed on them, so we'll have no more problems.

I hope.

Thanks again to all who responded.

dang, sorry, that was me who posted last as "anonymous"... forgot to log in.

ACH?

Last I knew, the US ACH system was not connected across international boundaries except to Mexico and Canada.

Speaking of sending foreign items for collection: We were charged $91 by our clearing bank for a counterfeit Canadian check that we sent off for collection. That kind of defeats the purpose, in my opinion.

While I agree that some of the collection fees imposed by payor or correspondent banks are, dare I say, "imposing," they pale in the face of losses that could result if the same checks were accepted for deposit and returned several weeks later.

We also have to remember that collections are an extremely manual process. If you consider the aggravation your bank went to just to place the check for collection, then double it, you're probably somewhere near the labor level involved for the payor or correspondent (particularly the correspondent) bank.