Have ever find yourself in a situation whereby a cheque you presented was dishonoured by a banker, it can be annoying and as well as embarrassing. But there is a reason why your cheques are dishonoured, and i’ve tried to list all of them on this article.
Cheques can be dishonoured by a Banker when presented for payment for various reasons. Section 75 of Bills of Exchange Act 1990 provides that the duty and authority of a banker to pay a cheque drawn on him by his customer are determined by;
- Countermand of payment
- Notice of customer’s death
Reasons why cheques are dishonoured
However, apart from the above reasons, a banker is bound to dishonour a cheque for the following additional reasons;
1. No Sufficient Fund
One popular and common reason why cheque is dishonoured. If the drawer has no sufficient fund or money in his or her account to cover the amount stated on the cheque.
I’ve experienced this before. A client drawn a cheque to me, getting to the bank to cash the money, the banker on the counter dishonoured the cheque stating that my client does not have a sufficient money in her account as to the amount she wrote on the cheque. Some usually call this a bounced cheque.
2. Forged Signature(Dishonoured)
Another reason that a cheque is dishonoured is the case of a forged or irregular signature on the cheque. The banker will deemed the cheque to be fraud, that is a fraudulent person might have drawn the cheque instead of the real owner.
In this case, the banker dishonours the cheque, and some might even go to the length of getting you arrested for the forged signature.
3. Difference in the amount stated
This is usually a mistake that some people do make, that is the amount in words being different from the amount in figures. If you’re drawing a cheque for someone, please carefully go through it and make sure that the amount in words matches the amount in figures. Else the cheque will bounce or dishonoured.
Other key reasons why cheques are dishonoured are as follows;
- If there are alterations on the cheque
- If the cheque is a postdated, stale or overdue cheque
- If the customer is known to be bankrupt or mentally incapacitated
- If there’s a legal bar to payment out of the customer’s account
- If the cheque is irregular
These and other reasons unmentioned constitute reasons why a cheque may be dishonoured on presentation.
When a cheque is dishonoured, the banker is expected to insert the reason for such dishonour on the cheque before returning it to the payee. Some of the answers to be inserted on returned cheques are;
- Refer to drawer
- Words and figures differ
- Amount in words required
- Material alteration requires drawer’s confirmation
- Payment stopped, payment Countermanded, order not to pay
- Account closed
- No account
- Crossed to two bankers
- Account attached
- Requires bankers crossing
- Out of date, stale
- Date incomplete
- Effects uncleared
- Effects uncleared – present again
- Endorsement irregular
- Endorsement required
- Endorsement requires banker’s confirmation
- Payee’s endorsement required
- Signature differs
- Second/further signature required
- Drawer signature required
- Cheque drawn in foreign currency. Please present specially
- Cheque militated
- Drawer deceased
- Receipt Stam required
- Wrong delivery
However, when a banker wrongfully dishonour his/her customer’s cheque, the liability of the banker in this regard is in respect of breach of contract and possible libel. Although, a wrongful is dishonour may be rare in practice, yet it occurs and the banker uses the words refer to drawer to return the cheque unpaid, and it may be presumed that he has defamed his customer.
This is because the word “refer to drawer” has ordinarily come to mean lack of funds, which in itself carries an innuendo(a hidden meaning) that the drawer has been acting dishonestly by using worthless cheques to obtain or to pay for goods and services.
To avoid this, the banker should use a more technical reason for returning such a cheque other than refer to drawer.
Since a banker owes a legal duty to his customer to honor all cheques drawn on him by his customer except where there are justifiable legal, express or implied reasons for dishonour such cheques, it will amount to to a breach of contract, and if the banker wrongfully dishonours his customer’s duly drawn cheques.
For such breach of contract, a customer who is a business man or woman will be entitled to a reasonable compensation for injury to his or her reputation and credit without proof of actual damage. But a non business person will be required to prove actual damage to his or her reputation before a reasonable compensation could be awarded to him or her otherwise, the person is only entitled to only nominal damages except where the reason given for dishonoring the cheque is found to be libellious.
These are the reasons why cheques are dishonoured. If you have more to add to this, i will appreciate it thanks.