In practice, after guaranteeing a cheque, the guarantor usually adds the cheque amount from the drawee’s deposit account to the guaranteed cheque account for payment when the guaranteed cheque is presented. Once a cheque is guaranteed, it has the following effects.
(1) Effect on the payee. After the payee guarantees a cheque, he or she assumes absolute responsibility for the payment of the cheque. Even if the validity period for payment expires, the payee is still responsible for payment. The payee may not guarantee an amount other than the deposit amount or the amount specified in the letter of credit. If a guarantee is made in violation of the above, it is still effective, but the payee may be fined.
(2) Effect on the drawee. Once a cheque is guaranteed, the drawee is exempted from its liability. Even if the guarantor does not pay, the holder usually cannot exercise a right of recourse against the drawee. After a cheque is guaranteed, the drawee may not revoke the payment authorization. Even if the drawee goes bankrupt, the effectiveness of the guarantee is not affected.
(3) Effect on the endorser. After the payee guarantees the payment on the check, the endorser is usually exempted from his liability. Even if the guarantor does not pay, the endorser cannot exercise the right of recourse against the endorser.
(4) Effect on the holder. If the holder does not present the check within the payment period, he still has the right to request payment. If the certified check is lost, the holder shall be responsible for it and shall not make a stop payment notice, but it can be resolved through the public notice procedure.