Cheques and their payment Chapter No4

Topic to be Covered 1. Definition of cheques 2. Types of cheques 3. The requisites of cheques 4. Parties of cheques, bouncing of cheques 5. Money paid by mistake

Definition of cheque  According to the negotiable Act 1881 an unconditional order in writing drawn on a specified banker, signed by drawer, requiring the bank to pay on demand a sum certain in money.

The requisites of cheques There is no prescribe form of words or design of the cheque. But in order to fulfills the requirements of Act a cheques must have following points 1)It should be in written 2)The unconditional order 3)Drawn on a specified banker only 4)Payment on demand 5)Sum certain in money 6)Payable to specific person 7)Signed by drawer

Parties of cheques  Sir John Paget says, “the normal cheque is one in which there is a drawer, a drawee, payee

The drawer  The maker of cheque is called drawer. He must be an account holder. In order to make the instrument a valid cheques the drawer must sign it exactly in accordance with specimen signature supplied to the banker.

The drawee  The person directed t pay is called “drawee” in case of cheque its always a banker with whom the drawer maintains an account as customer.  So bank is drawee

The payee  Payee is the person named in the cheque to whom payment is to be made.

Payment of cheques  It’s the primary responsibility of banker to repay the customer money when ever he demand.  The must honored the customer cheques, if the cheques meet the following criteria.

Essentials for cheque payment 1)Cheque must be in a proper form 2)Cheque should not be crossed 3)Cheque should drawn on particular branch 4)Cheque should be payable to bear or order 5)Cheque should not be mutilated 6)No unauthorized material alterations 7)Funds must be sufficient 8)The cheque should not be post-dated or stale 9)Cheque should be presented during banking hours 10) no legal bar prohibition payment

Cheque must be in a proper form  The customer contract reciprocally that in drawing his cheques, customer should fill the form in such manner which is clear and free from ambiguity.  In Afghanistan printed cheque are provided to customers.  If customer change the form it should be returned.

Cheque should not be crossed  A crossed cannot horned at the counter of bank to any person but collecting bank.  If the bank honors a crossed cheque, than owner of the cheque claim the damages from bank.

Cheque should drawn on particular branch  The payment of a cheque can be only by the branch of the bank particularly mentioned on the cheque where the customer is maintaining his account.  If arrangements have been made, encashment of a customer cheque.

Cheque should be payable to bearer or order  The payment should be made to a person who is in possession of it as a bearer or as per order  The banker will pay the cheque to the legal possession of it  Therefore banker must establish the identity of the payee before making payment

Cheque should not be mutilated  When a cheque is torn, worn out or does not give sufficient evidence of customer intention, it is called “mutilated cheque”  Banker should see the cheque should not be mutilated, if he ignore that point he will liable

No unauthorized material Act 1881 defines that “material alteration in relation to a promissory note, bill of exchange or cheque includes any alteration in the following 1.Date 2.The sum payable 3.The of payment 4.The place of payment Therefore, a banker must not pay a cheque bearing apparent material alteration.

Fund must be available  The drawee of the cheque having sufficient funds of the drawer in his hands.  Sir John Paget “ the obligation of the banker to pay cheques drawn on him by his customer is subject to the condition sufficient and available for the purpose to draw up to given limit.

The cheque should not be posted date  A cheque is not out of date when it is posted dated cheque are those which are presented for payment before the due date.  If the banker pays a posted date cheque earlier than due date, he lose the protection by law and shall have to bear any loss that may arises out of his action.

Cheque should be presented during banking hours  The banker must honors the cheque drawn on him if they are presented on working day and banking hours.  Banking hours established by DBA Afghanistan

No legal bar prohibition payment  The banker must see that the none of the following clauses is applicable on the presented for payment 1.Payment stopped by the drawer (customer) through a notice in writhing 2.Notice of insolvency, insanity or death of the customer 3.Any court order restraining the customer from operation from his account

Money paid by mistake  If a banker has made a payment by mistake he should naturally Endeavour to rectify the mistake and recover the amount.  The matter of recovery of the amount paid by mistake rests on the certain condition as mention below

Mistake of facts  The mistake under which the money has been paid must be one of “fact” so law as to enable banker to recovery.  For instance, the money payable to Mr. Shahid has been paid to Mr. Reeshad.  This will be treated as a “mistake of fact”

Money received malafide  If a person aware of the fact that he is not entitled to the money which he is receiving. It is payable to the payer on his claiming it.  However, if the money has been paid on the strength of a pass book entry, the cannot recover the amount

Mistake between the parties  A mistake must pertain to some matter between the party paying and receiving the money.  Bank cannot recover money because bank paid it in ignorance of some fact