By Chris O. O. Biose
YOU AND YOUR CHEQUE: Why bank clerks are very careful, First Published on the Daily Times, Saturday, June 6,1970, Pages 14-15
Whenever anyone opens a current account at a bank, he not only has at his disposal the wide-ranging services of his bank, but also assumes a number of obligations among them, to draw his cheques in a proper manner and with sufficient care.
- The bank of course undertakers that payment of any money deposited with them will be made upon demand. These demands for payment invariably take the form of a cheque.
- It has been rightly said that next to actual bank notes, cheques are the most important commodity in any bank where vast sums of money change hands each day by means of cheques.
- For centuries in England and for about 50 years now in Nigeria, the cheque has come into general use replacing cash in the payment of debts.
- It is interesting to note that as early as 1861, commercial law and usage in England had recognized the existence of various bills of exchange in that “any one bringing such a note shall be paid” (Sheldon V. Hentley).
- The Bills of Exchange Act 1882 defines a cheque as “a bill of exchange drawn on a banker payable on demand” which does not carry us very far. The definition given by Dr. Hart is probably more elucidatory.
- He defines a chque as “an unconditional order in writing drawn on a banker signed by the drawer, requiring the banker to pay on demand a sum certain in money to or to the order of a specified person or to bearer and which does not order any act to be done in addition to the payment of money”. The length of this definition is compensated by its clarity on what a cheque is.
- From the foregoing, it follows that a banker cannot deal with his customer’s without cutomer’s instructions. Nevertheless, a banker’s obligation to honour his customer’s cheque may be determined or rescinded by a number of circumstances.
- The cheque must be drawn in correct form and the instructions contained must not be ambiguous, and must not contain any irregularities.
- There must be sufficient funds at the bank to meet the amount of the cheque presented, alternatively, the customer must have arranged for an overdraft or as in some cases, an overdraft is being allowed without previous arrangement (due to the standing of the customer).
- There must be no legal bar to payment such as Garnishee order, or some incapacity or contractual disability in the customer such as lunacy, bankruptcy of a person or the winding up of a company or any other cause which may warrant the banker to postpone payment such as knowledge that the presenter of the cheque has a defective title or that honouring the cheque would prove to be a breach of trust. The cheques must not have been stopped.
- Death cancels all mandates and a cheque presented after the death of the drawer should be returned with the answer “Drawer Deceased”.
Due to considerations of space, I shall devote for remainder of this article to a discussion of the first point above, namely the regularity of the cheque.
It seems that by far the most important point here is the customer’s signature. The banker wants to be sure that the cheque he is dealing with is, in fact, that of his customer and not that of a clever dupe. Hence if he has any suspicion thzt the signature is not that of his customer, he will have to return the cheque with the answer “Signature Differs”.
The cheque must also be signed in accordance with the mandate held by the bank and if it transpires that the cheque is drawn out of accord with the mandate held by the bank, the cheque must be returned and it matters not that the signature thereon is 100 per cent accurate.
An example of a bank not acting in accordance with the mandate held is the case of Lord Terrington/Sir Harold Reckitt. Lord Terrington in his own personal attorney was utilising the money of his principal for his own personal use. One of these cheques signed in the manner “Sir Harold Reckitt by Terrington his Attorney” was actually paid in by Lord Terrington to reduce his overdraft at the bank. The court decided against the bank’s right to retain the funds represented by the cheque seeing that the action of Lord
Terrington in drawing the cheque constituted a fraudulent breach of trust.
Some first class customers honestly complain about what they consider to be an unduly meticulous approach by bank clerks who seem to have no other business in the world than to keep scrutinizing their particular cheques with the sole purpose of finding a small fault in order to return it. No customer is ever pleased when his cheque is returned.
The banker is not overjoyed either when he is faced with no alternative but to return his customer’s cheque for any of the reasons mentioned above. But the reasons may be compelling.
It has already been seen that a cheque which bears no signature is not a cheque at all. If it bears different signature, it is still not his customer’s signature and cannot possibly constitute a valid order to pay. If a banker pays such an instrument, he runs the risk that his customer may refuse to accept the debit by renouncing the instrument as not being his own and the banker will have no alternative but to bear the loss of the amount he has paid away through his own carelessness or indifference. Where there is no signature, the cheque must therefore be returned with the answer “Drawer’s signature required”.
Another actual example in one of the local banks recently was where a person came up at the counter, tendered a crossed cheque given to him by a customer of the bank and insisted on having the cash. “Could you pay it into your account, it is crossed and is therefore not encashable” pleaded the cashier.
It so happened that an officer of the bank authorized the payment in cash to the value of the cheque to the payee notwithstanding the fact that the cheque was crossed. Subsequently, an action was brought against the bank by the drawer of the cheque and the judgment of the court went against the bank.
It will be appreciated that the member of the bank staff was endeavoring to be of assistance to both the customer and the payee of the cheque but the resulting law-suit illustrates how sometimes an act carried out in good faith to assist a person can back-fire on the bank unless strict observation of basic banking laws is followed. Yet the “customer is always right and no banker is ever so ambitious as to try to challenge this position.
Another point is that a cheque which appears on the face of it to be more than six months old is ‘stale’ and should be returned marked “out of date”. Yet bankers are faced with the problem, each January especially, of finding virtually hundreds of their customers’ stale-dating their cheques by putting the past year’s date. On January 11, 1969, you have many cheques dated January 10, 1968 a year ago. Apparently, these cheques might have been drawn only the previous day. In strict theory, such cheques should be considered “out of date” and returned to the drawers for confirmation.
In practice, however, some relaxation is often allowed on the understanding that the customer will eventually confirm the action of the banker.
By Section 64 of the Bills of Exchange Act, 1882, the effect of a material alternation on a cheque is to invalidate the instrument except as against the person who made the alternation and subsequent endorsers. In particular, the following alternations are material, namely, any alternation of the date, the sum payable, the time of payment, the place of payment and where a bill has been accepted generally the addition of a place of payment without the acceptor’s assent. All material alternations on a cheque must be confirmed by the drawer signing the alternation.