Request By:
Hon. Frederick G. Neikirk
Pulaski County Attorney
104 W. Columbia Street
Somerset, KY 42501
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Susan N. Mastin, Assistant Attorney General
This is in answer to your letter regarding merchants charging a service charge on cold checks. You first ask if a merchant is allowed to charge a service charge and, if so, in what amount? A service charge can be imposed by a merchant in a multitude of ways. However, unless there is an agreement, the customer will not be legally bound to pay the merchant's service charge. Therefore, in order to answer your question, we must ask: When is a customer legally bound to pay a service charge imposed by a merchant for return of a check for insufficient funds?
When there is a written contract between the merchant and customer regarding the service charge, usually both parties are legally bound to the terms of the contract. The more difficult question arises when there is no written agreement between the merchant and the customer. Let us state as a preliminary matter, it is not a bar to the formation of a contract that the offeree does not accept an offer using words. Assent may be inferred from silence of the other party after learning the conditions, when it becomes his duty to act.
Equitable Life Assur. Soc. of the United States v. Brewer, Ky., 9 S.W.2d 206 (1928). It is a basic tenet of contract law that one's assent may be manifested by his or her conduct. Williston on Contracts, Section 90 at 323-25 (W. Jaeger 3d Ed. 1957). Thus, if at the point of sale, a merchant tells a customer, "If your check is returned by the bank for insufficient funds, I will require that you pay a $5 service charge, " and the customer, after having heard this, writes the merchant a check, it can be inferred that the customer assented to the merchant's service fee terms and agreed to pay the fee if his or her check is later returned.
Even if the merchant has not notified the customer of the service charge orally, the customer may still be bound by the service charge if it can be found that a contract was formed by implication. For example, if the merchant has posted the policy to assess a service charge on returned checks, it is presumed in certain circumstances that the purchaser assented to this condition. Although there is no Kentucky case on point, in
Merrel v. Research and Data, Inc., Kan. Ct. App., 589 P.2d 120, 122, the court held that the customer-plaintiff, in giving the merchant a check, agreed to pay the service fee specified in the sign posted nearby. The court held that evidence including affidavits stating that a sign was posted so that a person cashing a check or giving a check for merchandise could not help but see the sign raised the presumption that the plaintiff saw the sign when he presented his check. It then became incumbent on the plaintiff to present rebuttal evidence, such as an affidavit stating that he did not see the sign. Absent such rebuttal, the court upheld the trial court's finding that the plaintiff's assent to the merchant's conditions was manifested by the plaintiff's writig a check with knowledge of the merchant's terms. Another court which was faced with this issue, In Re Scrimpsher, N.D.N.Y. Bkrtcy., 17 B.R. 999 (1982), indicated it would require evidence that the purchaser "consider[ed] the service charge term" before it would hold that he or she assented to that term. In that case the purchaser produced her affidavit that she was never told by anyone of the $5 service charge, and that she never saw a sign stating that there would be a fee charged on returned checks; and the court found that the purchaser did not assent. Id at 1013. It should also be noted that the evidence included an affidavit from the merchant stating that the posted notice concerning the $5 service charge for bad checks was in place when the debtor made out her application. The court stated:
[T]his fact does not raise a disputed fact as to incorporation of alleged contractual terms unless there is evidence to refute the debtor's affidavit statements that she was never told by anyone nor ever noticed any sign at Wegmans that said there was a 'bad check $5.00 service charge. ' Absent some proof of considering the service charge term, in a legally binding obligation, either orally or in a check cashing application, the right to service charges is baseless and false.
Id. at P. 1013.
Both courts, Merrel and Scrimpsher, focused on the individual purchaser's knowledge of the service charge term. If the purchaser writes a check with knowledge that the merchant will impose a specified service charge upon dishonor, the purchaser thereby assents to the service charge term. Knowledge can be presumed from the fact that the sign was posted conspicuously, Merrel, supra, at 122, or from evidence that the purchaser was orally told of the condition or signed a check cashing application. Scrimpsher, supra, at 1013.
This requirement of the purchaser's knowledge of the service charge term can be analogized to the law of bailments regarding claim tickets.
[T]he trend of the more recent authorities is to view that receipt from the bailee at the time of the bailment of what is ostensibly a token of later identification of the bailed property, does not bind the bailor as to the provisions, purportedly limiting the bailee's liability, which are printed thereon, where his attention is not called to them and he has no actual knowledge at the time of the bailment that they are supposed to become a part of the contract.
Parkright Auto Parts, Inc. v. Badgett, Ky., 342 S.W.2d 630, 632 (1951).
The question of when is a customer legally bound to pay a merchant's bad check service charge is one of first impression in Kentucky. However, based on Kentucky's case law relating to assent of bailment terms, it may be safe to assume that the Kentucky courts when faced with this issue would follow the same legal analysis in the Merrel and Scrimpsher cases. If that is true, whether or not a customer is bound by a merchant's policy to charge a service charge would turn on the evidence of the purchaser's knowledge and assent of that service charge term.
Nothing in the above discussion shall be construed to address the question of if it is legal for a third party debt collector to attempt to collect a merchant's service charge from an alleged debtor.
Your next question is: If a merchant can charge a service charge, then what amount can this service charge be? Even though there does not appear to be any Kentucky case law directly on this point, the amount of the service charge would be subject to charges of unconscionability if in excess of what could be considered reasonable expense for handling the bad check. KRS 355.2-302.
Your last question is: Can the merchant refuse payment of the face amount of the check and then turn it over to the county attorney's office for the issuance of a warrant, if the only reason is that the individual who wrote the check refuses to pay the service charge? For the purposes of this discussion, we assume that the request is for an issuance of a warrant pursuant to KRS 514.040, Theft by Deception, which states:
(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 payment of money, knowing that it will not be honored by the drawee. . . .
(4) for purposes for (1), an issuer of a check or similar sight draft for the payment of money is presumed to know that the check or order, other than a postdated check or order, would 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. . . .
In the situation you pose, we assume the customer comes back to the merchant within the 10 day period after receiving notice of the refusal, offers to pay the check but refuses to pay the service charge. In that circumstance, it appears that there is no statutory presumption of intent to deceive. Whether or not the prosecution would be successful in obtaining a conviction based on the drawer's knowledge that the check would not be honored is another matter of which we could not even begin to speculate. From the language of KRS 514.040(1)(e) the subject matter of the deception is the issuance of a check, and not any ancillary service charges which the customer may or may not be legally bound to pay.