Are drafting checks legal?

Are Pre-Authorized Draft Checks Legal According to the Uniform Commercial Code?

We try to answer the FAQ: Are Drafting Checks Legal? Yes, pre-authorized or “Draft Checks” are indeed legal under the Uniform Commercial Code (UCC). This legality is supported by specific sections within the UCC that outline the requirements and definitions for valid commercial papers, including checks.

Key Sections of the Uniform Commercial Code:

  1. Title 1, Section 1-201 (39): This section defines what constitutes a ‘signed’ document. It states that ‘signed’ includes any symbol executed or adopted by a party with the present intention to authenticate a writing. This broad definition encompasses various forms of signatures, making pre-authorized checks valid as long as they meet this criterion.
  2. Title 3 – Commercial Paper, Section 3-401 (1): This section requires that for any writing to be considered a negotiable instrument, it must be signed by the maker or drawer. This implies that as long as the pre-authorized check is signed, it meets the criteria for being a negotiable instrument.
  3. Section 3-401 (2): It further clarifies that a signature can be any name, including trade or assumed names, or any word or mark used instead of a written signature. This flexibility in the definition of a signature supports the legality of various forms of signing, including those used in pre-authorized checks.
  4. Section 3-403 (1): This section allows for signatures to be made by an authorized agent or representative, without needing a specific form of appointment. This provision is particularly relevant for pre-authorized checks, where a representative or agent might sign on behalf of the drawer.

In summary, the Uniform Commercial Code provides a legal framework that supports the use of pre-authorized or draft checks. The UCC’s inclusive definitions of what constitutes a signature and its provisions for representatives or agents to sign, align with the practices involved in issuing pre-authorized checks.

 

Application of UCC Provisions to CHAX Check by Phone Draft Checks

The Uniform Commercial Code’s provisions are particularly relevant when considering CHAX check by phone draft checks. CHAX, a system that allows businesses to accept check payments over the phone, operates within the legal framework established by the UCC. Here’s how CHAX aligns with the UCC’s guidelines:

  1. Adherence to Signature Requirements: As per UCC Title 1, Section 1-201 (39), a signature includes any symbol executed with the intention to authenticate a writing. In the context of CHAX, when a customer authorizes a check by phone, they are effectively executing a form of signature, albeit not in the traditional sense. This authorization can be considered a ‘symbol’ of their intent to validate the transaction.
  2. Compliance with Negotiable Instrument Criteria: Under UCC Title 3, Section 3-401 (1), a negotiable instrument must be signed by the maker or drawer. CHAX checks comply with this by ensuring that each phone authorization is recorded and treated as a signature, thereby fulfilling the requirement of being ‘signed’ by the drawer.
  3. Flexibility in Signature Forms: UCC Section 3-401 (2)’s broad definition of a signature as any name, mark, or word used in lieu of a traditional signature is crucial for CHAX. This flexibility allows the verbal authorization given during a phone transaction to be recognized as a valid signature form.
  4. Authorized Agent Representation: UCC Section 3-403 (1) allows for signatures by authorized agents. In CHAX transactions, the business receiving the check acts as an agent, processing the check based on telephonic instructions. This is in line with the UCC’s provision for agent-signed instruments.

In essence, CHAX check by phone draft checks operate within the legal boundaries set by the UCC. The system leverages the UCC’s inclusive definitions and provisions to facilitate a modern, telephonic method of check authorization and processing, ensuring both legality and convenience in commercial transactions.