Certified Checks and Cashier Checks

BY JAY AND ARTHUR WINSTON, WINSTON & WINSTON, P.C.

Certified checks and money orders are types of instruments which are used frequently in purchasing homes or securities, and in other business transactions where the payee of the check wants assurance that the check will not be returned unpaid. At a real estate closing, the seller requires certified checks or bank checks. The perception is that a certified check or a bank check is as good as cash. Unfortunately, this is not true. A certified check can be stopped by the maker of the check if a bond is obtained to indemnify the bank against any claim that may be made against the bank. The premium may be substantial, since the amount of the bond may be double the amount or more of the check.

Money orders are checks issued by private institutions after receiving a cash payment in person. The money order is made payable to the person designated by the party paying for the money order, and it is used to send money through the mail rather than cash. The same scenario would apply to stopping payment of a money order issued by American Express or any company which issues money orders, although arguments may be offered that it is closer to a bank check than a certified check.

A bank check is a check issued by the bank and signed by a bank officer drawn on the capital assets of the bank. If the bank refuses to pay the check, the payee of the check would look to the assets of the bank for payment. If the bank issues a bank check on behalf of a depositor after receiving payment from the depositor, the bank would consider the check similar to a certified check and would not stop payment unless the depositor produced a sufficient indemnification bond. Several court decisions have held that a bank check is the equivalent of cash and thus cannot be stopped, even with an indemnification bond.

The payee must realize that certified checks, bank checks, and money orders are rarely returned unpaid, and only in unusual circumstances would someone incur the expense to arrange for an indemnification bond to stop payment on these types of instruments. On the other hand, while deposits are guaranteed by the Federal Deposit Insurance Corporation, certified checks and bank checks are not.