Liens On Bad Checks And Stop Payment Orders

By: Jim Busch

In the State of Georgia, a bad check is defined as a check drawn for payment of money on any bank in exchange for merchandise or for services rendered on merchandise when: (1) the party writing the check had no account with the bank at the time the check was written, (2) payment was refused by the bank for lack of funds in the account and is not paid within ten days after receiving written notice by certified mail that payment was refused, and (3) when written notice is returned as undeliverable to the sender when sent to the address printed on the check.

The State of Georgia allows for the filing of a lien when the above conditions have taken place. Under O.C.G.A. 44-14-516, the party receiving a bad check written in full or partial payment for merchandise, delivered at the time of the acceptance of the check, has lien rights identical to the lien rights of a mechanics’ lien and can be perfected in the same manner as a mechanics’ lien.

O.C.G.A. 44-14-516 also states, in part, that any party that receives a check for which the “…payer subsequently issues a stop payment order, shall have a lien for the face amount of the check on the merchandise so delivered if the stop payment order was issued within five days after the delivery of the merchandise”. This portion of the statute goes on to state that this lien can also be perfected in the same manner as a mechanics’ lien.

It is important to note that bad checks issued on or to pay an open account or credit account would not be covered by this statute. This statute only applies where merchandise is sold to a party and that party issues a check for the merchandise in question, (i.e., cash sale).

As with other liens, this lien would have to be filed within ninety days and a lawsuit filed within one year of the date the bad check was issued in order to perfect the lien. In addition, a notice of suit would have to be recorded within fourteen days of filing the lawsuit.

While this lien statute is theoretically beneficial, as a practice matter most suppliers do not obtain information regarding where the merchandise will be utilized. Thus, if a supplier were to have a bounced check on a cash sale, this lien statute will be of little use if the supplier does not know the location of the property where the merchandise was delivered or utilized. Thus, if a supplier received a check in direct exchange for merchandise (cash sale) and doubted the payor’s ability or intentions, it would be worth while to obtain information regarding the location of the project where the merchandise will be used in order to protect the suppliers’ interests.

It is important to understand that while liens may be recorded on certain cash sales, it is more important to understand what the statute requires to file a lien and what a party must know in order to realistically record a lien. Thus, a prudent party, when in doubt, will follow all the requirements of Georgia’s bad check statute, Georgia’s lien statute and obtain detailed information regarding the project from the payor prior to cash sales.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia