The phrase "Void After 90 Days," or some variation thereof, has long appeared on many checks. It's a restriction designed to protect the check issuer, but is it really enforceable? Is a bank liable if it honors payment of that check? A recent Illinois appellate court decision answered these questions with a resounding "No."
In the case of Aliaga Medical Center S.C. v. Harris Bank N.A., the court rejected a customer claim that BMO Harris bank improperly cashed its check, which bore the "Void After 90 Days" notation. This decision scores an important victory for banks across the nation and serves as a cautionary tale for bank customers, while defining a new rule of law.
First, the decision acknowledges the reality of modern banking and check processing, in which banks electronically process thousands of checks per day and cannot be expected to physically inspect each check for restrictive language. Thus, where a customer has printed such language on a check, the bank is not required to follow that notation alone because, according to the court, that "would create unworkable burdens on financial institutions in this era of ubiquitous electronic check processing." In other words, that notation is not a reasonable means to direct a bank to stop payment; instead, the customer must follow the procedures for stopping payment, specified in the financial institution's account agreement.
Although such standards have been repeatedly advocated for by leading Uniform Commercial Code (UCC) commentators, this is the first published court decision that specifically recognizes these important considerations in check processing. The accountholder agreements at some banks and credit unions do not yet specify that restrictive legends like "Void After 90 Days" are unenforceable. Those institutions should pay particular attention to the Aliaga decision in revising the terms of their agreements.
The court ruling also clarifies that a check bearing the notation "Void After [X] Days" is stale after the initial [X]-Day period, but is not actually void. Thus, following the initial [X]-Day period, the bank retains the right to charge the customer's account, though it's not obligated to do so. This is critical for the banking industry, as checks are generally processed by a computer reading the MICR-encoded line that does not show the check's date. Of course, some banks already have terms in their account agreements that reserve their right to pay a stale check, and that right is provided in the UCC. But having the court be explicit about this right is significant.
Finally, the Aliaga decision is important because it reinforces that it is proper for a bank, through its accountholder agreement, to modify terms of the UCC. The court explained that the relationship between bank and customer is created and regulated by the contracts between them and that the UCC expressly allows its provisions to be "varied by agreement." The court said this approach makes sense, given "the technical complexity of the field of bank collections, the enormous number of items handled by banks, the certainty that there will be variations from the normal in each day's work in each bank, the certainty of changing conditions and the possibility of developing improved methods of collection."
The ruling further emphasized that customers who fail to carefully review bank statements and notify their bank of an error in a timely fashion incur risk.
Banks should find this decision useful as it emphasizes the importance of the account agreement. The decision upholds terms of an agreement that modify the UCC and underscores the customer's obligation to be vigilant about errors in their statements. Banks also should regularly review and update their account agreements because, as the decision demonstrates, courts stand ready to vindicate reasonable terms and conditions.
Eric J. Gribbin and Julia R. Lissner are attorneys in the Chicago office of Akerman LLP. They represented BMO Harris Bank in defending both the underlying case and appeal that resulted in the Aliaga decision.