Request By:
Mr. Mack J. Morgan, Jr., President
Kentucky Retail Federation, Inc.
P.O. Box 237
Georgetown, KY 40324
Opinion
Opinion By: Steven L. Beshear
Your request for an opinion concerning the 1982 amendments to KRS 514.040 (Theft By Deception) has been reviewed by my staff. One amendment (House Bill 253) altered the statute to encompass theft by deception when one obtains the services of another by deception with intent to deprive him thereof; whereas, previously the statute only covered theft of property. The second amendment (House Bill 467) makes it an offense under the statute "to issue a check or similar sight order in payment of all or any part of any tax payable to the Commonwealth, knowing it will not be honored by the drawee. " The penalty provisions of the statute were not changed.
You have enumerated several questions which we will answer, using the format of your request.
I. BAD CHECKS
Q. 1. What constitutes a bad check?
A. 1. A "bad check" for purposes of theft by deception charges is defined in 514.040 which provides:
(1) A person is guilty of theft by deception when he obtains property or services of another by deception with intent to deprive him thereof. A person deceives when he intentionally:
(e) Issues or passes a check or similar sight order for the payment of money, knowing that it will not be honored by the drawee.
(4) For purposes of subsection (1), an issuer of a check or similar sight order for the payment of money is presumed to know that the check or order, other than a postdated check or order, would not be paid, if:
(a) The issuer had no account with the drawee at the time the check or order was issued; or
(b) Payment was refused by the drawee for lack of funds, upon presentation within 30 days after issue, and the issuer failed to make good within 10 days after receiving notice of that refusal.
Q. 2. What written wording would you recommend that a merchant use in notifying a person their check had been returned by the bank?
A. 2. We cannot recommend the wording that a merchant should use in notifying a person that his or her check has been returned. However, we would suggest that you refer to the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, which sets forth those practices that constitute harassment, abuse, or false or misleading representations in connection with debt collections. Although the FDCPA applies only to third party debt collectors, it serves as a guideline for determining what is an unfair, false, misleading, or deceptive practice in violation of the Kentucky Consumer Protection Act, KRS 367.170. Of particular importance is 15 U.S.C. § 1692e, which provides:
[T]he following conduct is a violation of this section:
(4) The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person . . . unless such action is lawful and the debt collector or creditor intends to take such action.
(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.
We would also suggest that the wording in the notification be clear, concise, and comprehensible. You may also wish to enclose a copy of the check along with the name, address and telephone number of the person to contact.
Q. 3. What method or methods of contact are permitted by Kentucky law? Of the methods of contact permitted, would a registered letter (return receipt requested) be safest? Would refusal to accept a registered letter be considered prima facie evidence of intent to defraud?
A. 3. For the merchant's protection, a letter sent by registered or certified mail would be the best method of notifying the customer. This method would provide clear evidence that the customer actually received notice that his check had been returned. However, it is doubtful that refusal to accept a letter could be considered prima facie evidence of intent to defraud.
Q. 4. After the ten (10) day expiration period what procedure do you recommend a merchant follow in order to take further action, assuming the customer has not made the payment?
A. 4. The merchant has several possible avenues available to him. He can again contact the issuer of the bad check, refer the matter to a collection agency, file a civil lawsuit, proceed under a dispute mediation program, refer the matter to the county attorney for prosecution, write off the loss, and possibly others. Only the merchant and his attorney can determine the most prudent course of action, depending on the facts of each transaction.
Q. 5. Does the law cover payroll checks? If so, against whom should the merchant proceed under the statute -- the issuing business or the last endorser?
A. 5. If the action is criminal, i.e., a prosecution for theft by deception, the issuing business is the proper defendant. However, if the merchant files a civil action, he may, under certain circumstances, attempt to recover from a prior endorser or negotiator of the check. The merchant's attorney should advise him in this matter.
Q. 6. Is a merchant required to wait the full ten (10) days before filing a warrant for an individual's arrest? Would this apply the same regardless of the type of check or reason for its return?
A. 6. According to KRS 514.040(4), the 10 day period applies only to subsection (b), where payment is refused by the bank for lack of funds. The merchant may proceed immediately on checks that are returned, under subsection (a), because the issuer had no account with the drawee bank. Also, there is no 10 day requirement under KRS 516.010 for forged, stolen, or altered checks.
Q. 7. May local court officials establish rules or policies which go further than the penal code provisions for bad checks? For instance, would it be legal for a local court to require that a check be thirty (30) days old before the officials could serve a warrant?
A. 7. Generally, a local court may only establish rules governing its procedures, and may not establish a rule that is in contravention of a law. However, if the parties involved are proceeding under a dispute mediation system, the court has more flexibility.
Q. 8. Are checks required to be presented for payment within thirty (30) days after issue?
A. 8. In cases where payment was refused by the drawee for lack of funds, checks must be presented within 30 days after issue in order to trigger the presumption that the issuer of the check had knowledge that the check would not be paid. KRS 514.040(4)(b).
Q. 9. How do you suggest a Kentucky merchant proceed on a bad check written by an individual residing in a state other than Kentucky?
A. 9. In instances where the amount of the check is $100 or more, i.e., where a felony is involved, the merchant should contact the local Commonwealth's Attorney if he or she intends to press charges for theft by deception. Where the amount of the check is less than $100, the merchant should consider alternative means of collecting.
Q. 10. What are the penalties for those found guilty under the bad check provisions of the penal code? Does the "value of the property" relate to the amount of the check or the value of the merchandise?
A. 10. Theft by deception is a Class A misdemeanor if the value of the property or service is less than $100. Such an offense is punishable by a possible term of imprisonment not to exceed twelve months and/or a fine in an amount not to exceed $500. If the offense is committed by a corporation, the corporation may be fined an amount not to exceed $10,000 or double the amount of the defendant's gain from commission of the offense. If the value of the property or service is $100 or more, theft by deception is a Class D felony. A Class D felony offense is punishable by imprisonment for not less than one nor more than five years. If a sentence of probation or conditional discharge has been granted, a person convicted of a felony may be sentenced to pay a fine in an amount not to exceed $10,000 or double his gain from commission of the offense, whichever is the greater. A corporation convicted of a felony may be sentenced to pay a fine in an amount not to exceed $20,000 or double the amount of its gain from commission of the offense, whichever is greater.
In the case of prosecution under 514.040 for a bad check, the amount of the check would be determinative of whether a felony or misdemeanor has been committed.
Q. 11. Does the Kentucky statute apply to payment made by check for merchandise previously bought solely on credit?
A. 11. KRS 514.040 is intended to apply to a check given in payment for goods or services that are being or have been purchased on credit. The 1974 Commentary following the statute provides: "The purpose or intent of the person at the time property was obtained governs instead of at the time the check was given." Thus, simultaneous consideration is not necessary to create the offense of theft by deception.
Q. 12. May a court require restitution in full to the merchant by the person writing the check in addition to any fine and/or imprisonment?
A. 12. Generally, only a fine and/or a sentence of imprisonment are imposed by the court. The criminal courts should not be used as a vehicle to collect debts. However, Kentucky law contains two provisions under which a court may, in its discretion, grant restitution. Under KRS 533.030, "when imposing a sentence of probation or conditional discharge, the court may . . . require that the defendant: (d) make reparation or restitution, in an amount to be determined by the court, to an aggrieved party for damage or loss caused by his offense." Under KRS 431.200, the court may order restitution if applied to by verified petition within 90 days of the date the sentence was pronounced. This statute does not deprive the aggrieved person of his civil action for the injury sustained.
Q. 13. Which party or parties pays the court costs involved relative to an action involving a bad check?
A. 13. In a criminal action, the defendant pays court costs if he is convicted. In a civil action, the prevailing party may recover court costs from the losing party.
Q. 14. Would a merchant be running a risk to openly display checks returned by banks for "No Account," "Insufficient Funds, " "Forgery" , etc. (counter top displays, etc.)?
A. 14. A merchant who publicly displays returned checks runs the risk of being sued for invasion of privacy or violation of the customer's civil rights. Also similar conduct might be in violation of the FDCPA, 15 U.S.C. § 1692d, which states:
. . . [T]he following conduct is a violation of this section:
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 1681a(f) or 1681b(3) of this title." [§ 1681a(f) defines a "consumer reporting agency"; § 1681b(3) lists the circumstances under which a consumer reporting agency may furnish a consumer report.]
Q. 15. Under the law what would a merchant ordinarily be required to show as evidence in court on actions involving bad checks?
A. 15. What can and should be adduced as evidence in trial depends on the facts of each case. In a criminal action, it is the county attorney, not the merchant, who must prove the case against the defendant. The elements of the crime of theft by deception are: (1) obtaining property or services of another (2) by deception (3) with intent to deprive him thereof (4) by issuing or passing a check knowing that it will not be honored by the bank. Each of these elements must be proved. Knowledge that the check will not be honored is presumed where (a) the issuer had no account with the drawee at the time the check was issued, or (b) payment was refused by the bank for lack of funds upon timely presentation, and the issuer failed to make good the check within 10 days after receiving notice of that refusal.
Q. 16. Is it legal for a merchant or bank to charge a fee in addition to the amount of the check if the check is returned for reason of "Insufficient Funds" ?
A. 16. Nothing prohibits a merchant or a bank from charging a reasonable fee on a check returned for insufficient funds provided that the customer has knowledge that they will be liable for this fee in the event the check is returned by the bank. Once the customer has knowledge of the fee and then issues a check to the merchant, they have assented to these terms and have agreed to pay the fee.
Q. 17. For how long after the check is written may legal action be instituted?
A. 17. In cases where the value of property or services is less than $100 the prosecution of an offense must be commenced within one year after it is committed. There is no statute of limitation in cases where the value of property or services is $100 or more. See KRS 500.050.
II. STOLEN CHECKS
Q. 1. In what manner and under what provision of the penal code are stolen checks covered?
A. 1. If a forgery is involved, i.e., if a person falsely makes, alters, or completes a stolen check, then the statute on forgery, KRS 516.010 et seq., would appear to be more suitable than the statute on theft by deception. However, there might be instances where the theft by deception statute is applicable, as where a person deceives by intentionally creating or reinforcing a false impression. KRS 514.040(1)(a).
III. FORGED INSTRUMENTS
Q. 1. How are forged checks treated under the Kentucky penal code? Does the amount of the instrument involved influence the penalty?
A. 1. Forged checks are considered to be forgery in the second degree. KRS 516.030 provides:
(1) A person is guilty of forgery in the second degree when, with intent to defraud, deceive or injure another, he falsely makes, completes or alters a written instrument which is or purports to be or which is calculated to become or to represent when completed:
(a) A deed, will, codicil, contract, assignment; commercial instrument, credit card or other instrument which does or may evidence, create, transfer, terminate or otherwise affect a legal right, interest, obligation or status; or
(b) A public record or an instrument filed or required or authorized by law to be filed in or with a public office or public employee; or
(c) A written instrument officially issued or created by a public office, public employee or governmental agency.
(2) Forgery in the second degree is a Class D felony.
Such an offense is a Class D felony. The amount of the check is one of several factors that a court may consider in determining the amount of a fine for a felony conviction. KRS 534.030(2)(d).
Q. 2. What is the penalty for a person found guilty of forging a check?
A. 2. A Class D felony offense is punishable by imprisonment for not less than one nor more than five years. If a sentence of probation or conditional discharge has been granted, a person convicted of a felony may be sentenced to pay a fine in an amount not to exceed $10,000 or double his gain from commission of the offense, whichever is greater. A corporation convicted of a felony may be sentenced to pay a fine in an amount not to exceed $20,000 or double the amount of its gain from commission of the offense, whichever is greater.
Q. 3. How does the statute on forgery and related offenses apply to such financial instruments as money, credit cards, money stamps and installment contracts?
A. 3. Counterfeiting or falsely altering money with intent to defraud constitutes forgery in the first degree if the forged money is part of an issue of money and not an isolated instrument. KRS 516.020 provides:
(1) A person is guilty of forgery in the first degree when, with intent to defraud, deceive or injure another, he falsely makes, completes or alters a written instrument which is or purports to be or which is calculated to become or to represent when completed:
(a) Part of an issue of money, stamps, securities or other valuable instruments issued by a government or governmental agency; or
(b) Part of an issue of stock, bonds or other instruments representing interests in or claims against a corporate or other organization or its property.
(2) Forgery in the first degree is a Class C felony.
Forged installment contracts, credit cards, negotiable instruments, etc. constitute forgery in the second degree. KRS 516.030.
Q. 4. Would the intentional altering of information on a driver's license be considered forgery?
A. 4. Falsely making, completing, or altering a driver's license with intent to defraud constitutes forgery in the second degree. KRS 516.030.
Q. 5. Is the use of slugs a criminal offense?
A. 5. The use of slugs is a criminal offense under KRS 516.120 and 516.130.
516.120 Using slugs in the first degree.
(1) A person is guilty of unlawfully using slugs in the first degree when:
(a) He makes, possesses or disposes of slugs with intent to enable a person to insert, deposit or use them in a coin machine; and
(b) The value of such slugs exceeds $100.
(2) Unlawfully using slugs in the first degree is a Class D felony.
516.130 Using slugs in the second degree.
(1) A person is guilty of unlawfully using slugs in the second degree when:
(a) With intent to defraud the owner, licensee or lessee of a coin machine, he inserts, deposits or uses a slug in such machine; or
(b) He makes, possesses or disposes of a slug with intent to enable a person to insert, deposit or use it in a coin machine.
(2) Unlawfully using slugs in the second degree is a Class B misdemeanor.
We hope this information is of value to you and your members. If you have any further questions about this or any other matter, please feel free to contact me.