Business

The verification rule in the UK

The UK verification rule – what is it? It is based on a simple legal rule which means that if you write a check to pay someone money, you are creating a contract by writing the check. If, for example, you have worked for someone who then pays you with a check and then the check is bounced, for example, the person who writes the check stops you, you can rely on some old but well established law. Under the Bill of Exchange Act of 1882, checks are classified as a “bill of exchange.” In fact, the law of this legislation is interpreted very strictly even now.

Using checks as payment: the law. When goods or services are paid for by check, there are legally two separate contracts entered into by the parties involved in the transaction. The main contract is what you expect it to be for the sale of goods or the provision of services. The second contract relates to the check itself. This is the important part of the ‘check rule’. The person who writes the check to pay the main contract legally agrees to pay the amount noted on the check. How can this help in practice? Provides an additional option to receive payment if a check stops or bounces. First, as expected, there is the normal option to take legal action for non-payment of monies owed under the main contract. Also, relying on the law on the ‘check rule’, there is the additional option of suing over the bounced check. In most cases, suing over the check offers the significant advantage of leaving the buyer who rejected the check with a very limited set of defenses available. The defenses that may be raised can only relate to the issuance of the check itself, for example, the check was issued under duress or as a result of fraud.

Is it faster to use the check rule than the normal approach? In most cases it will be much faster. If the seller files a lawsuit on the main contract, the buyer can present any of the normal defenses that relate to the contract itself to defend the legal action, for example, poor quality of work, defective products, etc. This will normally result in a full judgment of all disputed issues between the parties. However, when filing a lawsuit for the unpaid check, you can file a request for summary judgment. This allows a judge to decide the case without having a trial. Summary judgment is normally granted when there is no defense to the action. As mentioned above, the ‘check rule’ defenses only relate to the check itself and are rarely available. Therefore, suing for a suspended check can be a safer and simpler litigation process than suing for non-payment of the initial contract. This method of getting paid with so little to prove is something every businessperson should know about.

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