A recent article in the American Banker noted an Illinois court decision involving the right of a drawee bank to pay a check bearing the words “Void After 90 Days” long after the lapse of 90 days. The article states in part:

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 the payment of that check? A recent Illinois Appellate Court decision answered these questions with a resounding “No.”

The Illinois Appellate Court case, Aliaga Medical Center v. Harris Bank¹ is helpful, but it falls short of scoring “an important victory for banks across the nation . . . while defining a new rule of law,” as stated in the American Banker article.

Many check issuers attempt to encourage payees to negotiate items promptly by stating on their checks “Void After 90 Days” or similar language. Thousands of such checks have been cashed or negotiated long after the lapse of the specified period of time. Issuers recognize that most drawee banks utilize provisions in their account agreements to pay items that might be characterized as “stale items.”

In the Harris Bank case, the check in question was issued by Aliaga’s president in the amount of $50,000, payable to his wife as part of a divorce settlement. The check included a statement “Void After 90 Days.” The payee cashed the check nearly six months after its issue date.

The plaintiff, Aliaga, argued that the statement “Void After 90 Days” somehow took the item outside the scope of the terms of the bank’s account agreement. The court rejected this argument, stating:

We cannot agree with Aliaga’s characterization, as it would create unworkable burdens on financial institutions in this era of ubiquitous electronic processing. The agreement between the parties governs.

The rest of the court’s opinion was devoted to addressing the provisions in the bank’s account agreement, e.g., stop payment provisions, 60-day notice provisions and one-year notice requirement. Aliaga took no steps to comply with these account provisions.

As observed earlier, the Harris Bank decision may be helpful if an issuer claims that a provision on a check such as “Void After 90 Days” should be monitored and enforced by the drawee bank. But the Illinois Appellate Court’s decision, which is controlling only in the state of Illinois, simply underscores the importance of the terms of the account agreement a bank has with its customer.

¹21 N.E. 3^rd 1203, 387 Ill. Dec. 32, November 10, 2014.

Sherman Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation and does not create an attorney-client relationship between any reader and the Firm.

©2015 Sherman & Howard L.L.C.                                                                             April 22, 2015