Request By:
Mr. Martin W. Johnson
Attorney at Law
John Lovett Building
Benton, Kentucky 42025
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your firm represents the Bank of Benton. You have been informed that payroll checks of employees of the Marshall County Health Department drawn on the County Health Central Bank account at Farmers Bank, Frankfort, do not contain an unconditional promise or order to pay as required by KRS 355.3-104(1)(b).
These checks contain only the name of the employee and the amount to be paid. The directive "pay to the order of" or other words indicating an unconditional promise to pay do not appear on these drafts. The Bank of Benton is concerned about the acceptance of the documents in banking transactions.
You specifically request our opinion as to the bank's liability for accepting these drafts for deposit to payee's account, or for the purpose of payment on a note, or for payment of the sum specified to the payee.
We understand from the State Bureau for Health Services that certain documents have been issued involving this account which contain the local employee's social security number, the pay period, the employee's name, and the amount to be paid. At most this would constitute a warrant for making a check.
However, with only that data and terminology, we agree that such documents would not qualify as a negotiable instrument. Specifically, under KRS 355.3-104(1)(b), there is no unconditional promise or order to pay a sum certain. Owings v. Rider, 241 Ky. 756, 45 S.W.2d 487 (1932) 488.
The only clean cut approach to this problem is to require the employee presenting such document to take the document and procure the appropriate check, covering the amount due, and containing the usual "pay to the order of" or other language indicating an unconditional promise or order to pay etc.
The Bureau of Health indicates this matter will be straightened out.
Under this approach the Bank of Benton will not have to worry about attempting to process such nonnegotiable instruments and any attendant liability.