Request By:
Hon. Edward G. May
Lincoln County Attorney
Lincoln County Courthouse
Stanford, Kentucky 40484
Opinion
Opinion By: Robert F. Stephens, Attorney General; Miles H. Franklin, Assistant Attorney General
This is in reply to your inquiry in which you indicate that merchants have been presenting your office with checks returned by various banks for "stop payment. " The merchants seek prosecution on the basis of theft by deception, KRS 514.040. You are perceptively hesitant to proceed criminally against the check makers because of the difficulty in establishing an intent to defraud by stopping payment on a check after its issue. You ask that we advise you as to the proper method in dealing with the merchants that present your office dishonored checks for collection and prosecution.
As prefatory background, note the language in Patterson v. Commonwealth, Ky. App., 556 S.W.2d 909 (1977):
The net result of the 'cold check' statute is that knowledge required by subsection (e) is imputed to the issuer of the check if he does not make the check good within ten (10) days after he learns the check has been dishonored. This imputed knowledge in turn meets the requirements of subsection (1) concerning 'intent to deprive.'
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The legislature of this Commonwealth created the 'cold check' statute in such a manner that proof of one fact (failure to cover the check within ten (10) days after due notice) is prima facie evidence of another fact (criminal intent to deceive) essential to the guilt of the accused. . . .
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. . . We believe that the worthless check statute does not punish one for a debt but rather for a fraudulent act. Since intent to defraud is an essential element, it is not in violation of Section 18 of the Kentucky Constitution prohibiting imprisonment for debt.
The question now is whether theft by deception covers that situation where a check is dishonored by a bank for "stop payment. " We held in the affirmative in OAG 75-132, copy enclosed, but this conclusion merits further clarification.
KRS 355.4-403 authorizes a bank customer to stop payment on any check the customer has written by ordering the bank on which the check is drawn to stop payment. This may be accomplished with either oral or written notice. In Harlan National Bank v. Carbon Glow Coal Company, Ky., 289 S.W.2d 200 (1956), the Court decided that a bank pays a check at its peril where a validstop payment order has been received by it. See also 10 Am. Jur. 2d Banks § 649 (1963).
The drawer has an unlimited choice or discretion to stop payment of his check as he sees fit subject only to the hazard that he may be breaching a contract duty. Unless he has a defense available against the party entitled to payment, he may find that he has made himself liable for a breach of contract and as a drawer on dishonored paper. Obviously the issuance of a check and subsequent stopping of payment of the check by the maker is insufficient in itself to constitute a fraudulent act.
It would seem that a "stop payment" order could occur when the customer is dissatisfied with the product or service that he has purchased and thereby expresses his grievance on the following or successive days. Theft by deception does not apply in the usual stop payment case where the drawer has sufficient funds in his account to pay the check. 1
On the other hand, if there were repeated instances of "stop payment" by an individual, suggesting a scheme, and if there appeared to be no valid reason for stopping payment following the delivery of the merchandise, then perhaps deception could be shown, not under KRS 514.040(1)(e), but KRS 514.040(1)(a). See OAG 76-43, copy enclosed, dealing with this latter statute section.
We conclude that this area of dishonored checks involving "stop payment" is much more sensitive than the normal "insufficient funds" situation. With the latter, more common occurrence, you have the benefit of the statutory presumption following notice. The intent to deceive is more easily established, see 32 Am Jur 2d False Pretenses § 73-81 (1967). With the former, you have no such presumption, but must proceed under 514.040(1)(a) and attempt to prove the issuer's intent when he delivered the check by assessing the time frame before he stopped payment (time and date being documented by the bank).
You have correctly assessed this situation as a civil matter involving a debtor-creditor relationship. Your merchants belong in a civil forum rather than on the criminal dockets.
Footnotes
Footnotes
1 For example, an Assistant Fayette County Attorney, who prosecutes actions under KRS 514.040, estimated that in the past five years, he has only prosecuted two "stop payment" cases because of the absence of criminal intent associated with this commercial code authorization of stop payment.