Difference between an Ordinary Cheque Transaction and a Cheque Card Transaction - Case Study Example

QUE: There is a fundamental difference between an ordinary cheque transaction and a cheque card transaction. ANS Discussion. The cheque card or abank card unlike a cheque is issued by the bank voluntarily to its selective customers, thereby under taking the risk of issuing a card to a particular customer. No customer can demand a cheque card as a matter of right. The general characteristics of the card are, certain formalities are required to be observed by the payee, the card is usually valid for a year, the card is revocable and the bank can call it back or give general notice in case of theft and loss. The trader too is getting advantage by getting guaranteed payment. There is the advantage of stimulating trade and the ready movement of money. Thereby leading to the temptation to spend more if the customer has a cheque card. A high degree of risk is taken by those who circulate these cards. The whole point of the cheque card is to make it wholly different with banks promising to pay irrespective the state of the customer's account. The person who produces a cheque card makes no representation that he is in credit with his bank. All the trader is concerned to ask is whether the customer have a cheque card, whether it matches the cheque, whether the cheque is for not more than the permissible credit limit and whether the signature on the cheque match the signature on the card. The point of law that came under discussion in the matter of Reg. v Charles was what representations if any are to be, or may be, implied in a cheque card transaction In the present case the appellant/ accused opened a bank account with the National Westminister Bank. He was allowed an overdraft of 100 pounds of one month which was latter extended for a month. The conditions were printed on the back of the cheque. The issuing bank undertakes that any cheque not exceeding 30 pounds will be honored subject to the fact that the cheque must be signed in the presence of the payee, the signature on the cheque must correspond with the specimen signature on this card, the cheque must be drawn on a bank cheque form bearing the code number shown on his card, the cheque must be drawn before the expiry date of his card, the card no. must be written on the reverse of the cheque by the payee. If these conditions are complied with the recipient need not concern himself about the drawers credit worthiness for he knows the cheque would be honored on presentment. A man who gives a cheque represents that it will be met on presentment. And if a cheque is accepted by the payee it is the belief that it will be met. And when it is supported by the bank's undertaking and all doubts in the mind of the payee as to the cheque being honored will be removed if he sees that the stipulated conditions are complied with. But by issuing a cheque book and a cheque card the bank has not authorized him to bind them by the use of the card to honor every cheque in the cheque book. It was observed that by exhibiting to the payee a cheque card containing the undertaking by the bank to honor cheques drawn in compliance with the conditions endorsed on the back, and drawing the cheque accordingly, the drawer represents to the payee that he has actual authority from the bank to make a contract with the payee on the bank's behalf that it will honor the cheque on presentation for payment. Speaking on ostensible authority on its head it was observed that if the other party has believed the representation and on the faith of that belief has acted upon it and the person represented to be his principal has so conducted him self towards that other party as to be estopped from denying the truth of the representation , then and only then, is he bound by the contract purportedly made on his behalf. The whole foundation of liability under the doctrine of ostensible authority is a representation , believed by the person to whom it is made, that the person claiming to contract as agent for a principal has the actual authority of the principal to enter in to the contract on his behalf. That is the representation that the drawer makes to the payee when he uses a cheque card to back a cheque which he draws in compliance with the conditions endorsed on the card. That in the instant case the accused person's cheques had not been not accepted had he not believed that the accused was authorized by the bank to use the cheque card to back them. Emphasis and weightage has been given to the representations made whether they were true or false to the users knowledge ; whether they deceived, and whether they induced the party to whom they were made addressed to act such a manner as led to the user of the cheque card obtaining increased borrowing by way of overdraft. By simply drawing a cheque the cheque would not have been accepted it had to be backed by a cheque card. In order to make the bank liable to the payee there must be knowledge on the payee's part that the drawer has the bank's authority to bind it, for in the absence of such knowledge the all - important contract between payee and bank is not created; and it is the representation by the drawer's production of the card that he has that authority that creates the cheque. By drawing the cheque the user represented that it would be met, and by producing the card so that the number thereon could be endorsed on the cheque. The production of the card is the badge of the accused's ostensible authority to make such a representation on the bank's behalf. The above contention was dealt in depth in the matter of Reg. v Kovacks (1974) 1 W.L.R 370,373 In conclusion, when the holder of a cheqeu card presents a cheque in accordance with the conditions of the card which is accepted in exchange for goods, services or cash , it is clear that this transaction proceeds evidence of itself from which it can or should be inferred, that the drawer represented that he then had authority, as between himself and the bank, to draw a cheque for that amount , and that the recipient of the cheque was induced by that representation to accept the cheque. It is a point of fact and not law as it depends on all the circumstances and above all upon what the recipient of cheques in those circumstances has to say. Reg v Page speaks at length about the aspect of representation. The striking difference between an ordinary cheque transaction and a cheque card transaction is that a cheque card is made absolutely differently with banks promising to pay irrespective of the state of the customer's account and the customer is not required to show that he is the owner of the cheque card. The customer is only required to show that he has a cheque card and whether it matches the cheque and whether th e cheque for not more than 30 pounds and whether the signature on the cheque match the signature on the card. The cheque card is a fairly modern concept. In the case of an ordinary cheque, all the payee is concerned with is that the cheque should be honoured by the bank and the drawer of the cheque must be required to convince the payee that it shall not be bounced/dishonoured. In comparison, it may be said that even in the case of a cheque card, the payee should be concerned with the fact that the cheque should be honoured by the bank. In this case, the drawer represents to the payee that he has the actual authority from the bank to make a contract with the payee on the bank's behalf that it will honour the cheque on presentment for payment. It may also be submitted that the drawer in possession of the cheque card and the cheque book with the consent of the bank is enough to constitute his ostensible authority which alone can suffice to create a contract with the payee that was binding on the bank. It is there fore concluded that when a person acting as agent of the principal purports to enter into a contract with the other party that he has the actual authority of the principal on whose behalf he has entered into the contract. This in brief is exactly the representation made by the drawer to the payee when he uses the cheque card to back a cheque drawn by him in compliance with the conditions endorsed on the card. In the instant case it was observed that Mr Cersell the manager of the gaming club would not have taken the accused's cheques if he had not believed that the accused was duly authorized by the bank to use the cheque card to back them. In Reg v Page it was observed that the entire exercise of drawing a cheque is an act to be performed in the future and what it implies of the present is that the drawer has an account with that bank, he has the authority to draw on it for that amount, the cheque which is drawn is a valid order for the payment of that amount meaning thereby that presently as the facts reveal, in all likelihood the cheque shall get honoured in the future. It is obvious that if a man gives a cheque he is sure that it will be honoured the moment it is presented and if the cheque is accepted by the payee it means that the payee believes that the cheque will be honoured. In contrast to this in a situation where a cheque card is to be used, the representation that the cheque shall be honoured is still there as in the case of an ordinary cheque presentment. It is supported by the that the bank has made an undertaking and all doubts in the mind of the payee as to the cheque being honoured will be removed if he sees that the stipulated conditions are complied with. On the other hand, the use of a cheque card means that the cheque card holder is using it to secure the acceptance of his cheque and it means that he is making an additional representation that he has the authority of the bank to use it in relation to that cheque for that purpose and he would do so in the ordinary course. He is by all means authorized by the bank to give an undertaking on its behalf to pay up to 30 pounds on a cheque subject to fulfillment of the stipulated conditions. It is important to point out that he does not have unlimited authority in as much as by giving him a cheque card and a cheque book the bank has not given him an unlimited power to honour every cheque in the cheque book and in any circumstances it cannot be purported to mean that he can secure acceptance of a cheque which he knows would not be honoured by the bank if the cheque card had not been used. The implications of using cheque cards on criminal law is that firstly it must be established that the accused had made the representation which did not end in a smooth transaction of money, that he had made it dishonestly and the person to whom the representation was made was thereby induced to act as he did and by such deception the accused obtained willful gain. The definition of deception is any deception, deliberate or reckless by word s or conduct as to fact or as to law. What is representation is to be implied by the simple act of drawing a cheque. In Reg v Page and in Reg v Hazelton it was observed that the three main statements to be borne in mind about the present is that the drawer has an account with the bank, he has authority to draw on it for that amount, once drawn, the cheque is a valid order for the payment of that amount without even giving any representation that or even implying that the drawer has any money in this bank to the amount drawn although he retains the authority to overdraw and has been given the liberty to pay in the amount to ensure honouring of the cheque. In Reg v Kovacks, it was observed that nowhere in section 16 (1) it is expressly or by implication suggested that the person deceived must suffer any loss arising from the said deception. What is necessary is to show if the accused by deceiving has been able to gain from that deception, monetarily. In a cheque card case, there is nothing such as an implied representation as the payee is not at all concerned with the drawer's credit worthiness and is also least concerned with the nature of the contract between the bank and the drawer. In the end, what can be said is that in the case of a cheque card, as long as the conditions on the back are met, the bank will disburse the amount irrespective of the state of the drawer's account or the authority which he has in drawing it. Once there is a cheque card, all else becomes totally irrelevant. As a result, in public interest the point of law at hand discussed was that when a cheque card holder presents it along with a cheque after fulfilling all the conditions on the back of the cheque and the cheque is accepted in exchange for goods, services or cash would provide evidence of itself that the drawer represented that he then had the authority between himself and the bank to use the card making the bank pay/honour the cheque. Therefore presentment of an ordinary cheque and the use of a cheque card is different yet similar as to the final goal. In short, the cheque must be backed by a card in that the card plays a vital role in making the bank liable to the payee if the drawer has the authority by way of the card that instantly creates a contractual relationship between the bank and the payee and does not allow the bank from refusing to honour the cheque, making it simple to understand that the drawer of the cheque represents that the same will be honoured and by producing the card he endorses the number of the card on the cheque. Sources : CASE LAWS 1. In Re, Reg. v Kovacks (1974) 1 W.L.R 370,373 2. In Re, Reg. v Page (note)(1971)Q.P 330 3. In Re, Reg v Laverty (1970)3ALL E.R .432 4. In Re, Rex V Lord Kylsant (1932)1 K.P.442 5. In Re, Reg v Hazelton 1874 LR 2CCR 134 6. In Re, 138 (KELLYCP)140 (BRETTJ) Read More