A bit confusing but what I mean by this is say, a guy writes a 1000 dollar check (made out to cash)to buy a quad. The guy receiving the check, instead of cashing it out, uses the original check to then go buy his own quad and so on.
In: Economics
You’ve stumbled into the field of Commercial Paper and Negotiable Instruments. The person writing the check is called the Maker. In your example the maker has issued the check to cash. The maker then surrenders possession of the check to a person that is identified at the Holder. If the holder had also been named as the person to whom the check was made payable they would be known as both the Holder and the Payee. In accepting the check in payment the Holder and the Maker agree, likely unknowingly, to a set of rules and laws that apply to Commercial Paper which brings into the transaction each parties’ bank and the Federal Reserve and to a certain extent the laws of the state(s) where the transaction occurred. The Maker/Payor, Holder and Payee together with the additional parties are subject to the rules of presentment, acceptance and notice of dishonor. Potentially the check is accepted and paid or it might not. So in many ways a check is not the same as cash. In some ways a check is better than cash because a lost instrument can be cancelled and replaced.
There is however a type of check that is almost identical to cash although ever so slightly different. That is a Certified Check issued as a Certified check by a bank. If you’d like more detail let me know.
Latest Answers