Is a photocopy of a check legal tender?

QUESTION: A broker told me recently that delivery of a photocopy of an Earnest Money Deposit check fulfilled the seller’s obligations under the Offer to Purchase and Contract.  He pointed out that you can now use a smart phone to take a picture of a check and deposit it into your checking account.  He said that a photocopy of a paper check is no different than a photo taken with a phone, so it stands to reason that a bank would have to accept a photocopy too.  That doesn’t sound right to me.  What do you think?

ANSWER: We believe the broker is incorrect.  Although a federal law known as “Check 21” now permits banks to accept images of checks for deposit from other banks and from bank customers, it does not follow that either a depository bank or a bank on which a photocopied check is drawn on would accept or honor a photocopy of a check. In our view, a seller would not be in breach of contract for refusing to accept a photocopy of an EMD check, and could terminate the contract if the buyer refused to deliver immediately available funds following notice from the seller given in accordance with paragraph 1(d) of the Offer to Purchase and Contract (form 2-T).

Check 21 provides that images of checks are legally the same as paper checks, allowing banks to electronically transfer check images instead of physically transferring paper checks.  Check 21 also means that a customer may deposit checks by presenting an image if that service is offered by his or her bank.  In 2009, USAA became the first bank to permit customers to deposit checks with a smart phone.  The customer uses the camera to take a picture of the front and back of the check and then transmits the images along with other verification information to the bank, where final validation occurs.

Banks still need to use paper checks sometimes.  To address this need, Check 21 allows a bank to create and use “substitute checks,” which are paper reproductions of original paper checks.  A substitute check must meet several very specific requirements and must bear the legend “This is a legal copy of your check.  You can use it the same way you would use the original check.”  A simple photocopy of a check clearly does NOT meet the requirements of a substitute check and cannot be presented or accepted as such.

Release Date: 01/31/2017

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