Stale or Outdated Cheque

As per banking custom a cheque (also bankers draft) becomes stale when it
remains circulation for more than six months, though there is no legal sanction
in this respect. Such an instrument is not honored by the drawee banker unless
revalidated by the drawer. But it does not appear established that the drawer or
the endorser of such an instrument is discharged from liability unless barred by
limitation of three years.

A stale check is one that is presented for payment six months or more past the date
on its face. Banks are under no obligation to cash a stale check unless it is a
certified check; however, the institution can cash the instrument if it appears to be
a payment made in good faith. Each financial institution may have its own policy
on whether to pay or decline these checks.

Stale checks can be dangerous to a consumer who chooses not to balance his
checkbook and only refers to his account balance to determine whether or not he
has money available. It can be easy to forget an outstanding check over the course
of six months; if one suddenly is presented for payment, it can put the account
holder into overdraft, racking up fees. It's best to contact anyone who may be
holding a check beyond a few months to determine if the check has been lost and
what is causing the delay.

If a check is refused for payment due to being out of date, the holder must contact
the original payer and obtain a new check to replace the stale one.

A stop payment order can prevent the bank from cashing a stale check, but these
orders often have an expiration and the check may be negotiable after it expires.

The date when the check is presented to be cashed or deposited in a bank account
is known as the payment date. Checks dated six months after this payment date do
not have to be honored by a bank pursuant to the Uniform Commercial Code in the
United States. This code is a set of laws adopted at the state level that governs
financial contracts. The bank receiving a stale check can return the check to the
paying bank marked unpaid, request a new check be issued or consult with the
person who wrote the check.

For example, XYZ Company submitted a series of checks to Raw Material

Services, Inc. to pay for supplies necessary for manufacturing and production. Raw
Material Services, Inc, neglected to deposit these checks at the bank. These checks
are dated between August 1 and August 31, 2009 and the current date is May 15,
2010. The payment date for these checks is over six months old. If Raw Material
Services, Inc. elects to deposit the checks at their bank, they will be classified as
stale checks or stale dated checks. Pursuant to the Uniform Commercial Code Act,
the bank that Raw Material Service, Inc. elects to deposit the checks to can refuse
to cash these checks and may return them to the issuing bank. Raw Material
Services, Inc. can request that their bank reconfirm payment rather than returning
the checks as unpaid. To confirm payment, Raw Material Services, Inc's bank must
request that a new check be issued or that a new payment date can be validly
placed onto the existing checks.