Legal Formalities in Making Payments by Cheque - Essay Example

Cheque Payment Name Course Institution Date Introduction A cheque refers to a paper that has been written by a person who owns a bank account with a given bank ordering the bank to make monetary payment from his/her account on their behalf to another individual or organization. The individual that writes the cheque is known as the drawer and should have a current bank account with the bank being ordered to make payment to the company or other person. (Tolley & Norman 2014). Cheques are important in the recent modern day process of making transactions involving large amounts of cash since the cheque relieves the burden of carrying lump sums of cash which is risky. We live in the age of plastic money hence most people have not realized the importance of learning the writing of a cheque and the process involved (Wettschreck 2010). This article lays down the procedures of writing a cheque, the legal requirements and the factors which can invalidate a cheque and the remedies for the ones who break the rules and regulations governing the payment making process of cheques. 1. Legal necessities in cheque writing Since a cheque is an official document recognized by the laws worldwide, it has to be written to the requirements outlined by the banking laws of specific nations or countries. Failure to abiding to the rules guiding the process, an individual is eligible to be prosecuted in the court of law (Oliyide 2008). The following activities should be done in the process of writing a cheque; 2.1 Process of cheque writing The various sections of a cheque should be accurately and carefully completed by filling in either by typing or writing with a pen. The parts of a cheque which require completing are; Date, (normally found on the upper right part of the cheque. Specifies the writing date or the date which the cheque should be cashed), Maker, (this is the name of the person who owns the bank account to be credited and should be written in full), Payee (here the full names of the individual or an organization or rather the company to be debited the amount in in the cheque), Amount (usually has a rectangular box where the writer should indicate the numerical amount he/she is ordering the bank to pay out. The currency is usually specified by the cheque depending on the country of transaction), Written Amount (this box is usually filled from its beginning and the writer is required to spell out in words the amount of money in transaction), Memo (this part will contain the information on the purpose of carrying out the payment, Signature (this section will require the cheque maker to sign his/her legal full name in the provided space in order to legalize the cheque and formalize it) and Cheque Register(maker is supposed to have a register whereby the amounts of written cheques are recorded in order to avoid charges from any bounced cheques. The amount being written in the cheque is supposed to be deducted from the current account balance (Wettschreck 2010). If there is an error in the body of written cheque, it can lead to its rejection or its processing may be delayed by the bank. Legible writing of the cheque in ink or by typing is necessary to avoid alteration of its contents. In personal cheque, line of the signature should be signed by the owner of the current account of the bank being ordered to make payment. The signature is the one that makes it legal and should be done in the same way as per the sample provided by the maker to the bank. The amount in the cheque should always be written at the beginning of the blanks. Doing that will minimize the chance of making unlawful alterations to the cheque. A line should be drawn through any empty space left on the cheque to avoid leaving blanks on the paper (Tolley & Norman 2014). The amount written in words should precisely match the amount written in numeric form. This amount should be written very close to the currency sign in the box not avoid the forgeries from inserting their own figures before the maker’s. For the sake of the account’s security, the account holder should under no condition sign blank cheques. Avoided cheques, if any are available should be immediately destroyed and all the written cheques should be entered into a register. Correct spelling of the names and the amount in the cheque also should never be overlooked and dates should be written correctly to avoid rejection. A well written cheque is accepted by the bank, processed and payment done as per the maturity date and the presentation of the cheque. However, if there is a mistake done whether deliberate or accidental against the regulations guiding cheque payments, a cheque may bounce or be dishonored (Comisky & Zubowicz 2006). 3. Dishonoring a cheque When a cheque is presented to the drawee bank and the bank pays the ordered amount, the cheque is said to have been honored. If the cheque is not paid, it is said to have been dishonored. The various reasons that may lead to a bank rejecting cheques from drawers are; 3.1 Reasons for dishonoring a cheque 1. Non-existing account: At times, tricksters with no bank account but own false cheque books might produce cheque to the ones they are tricking (Chandler & Gely 2011). 2. Insufficient fund in the account: This condition occurs whereby the drawer on the cheque writes more amount on the cheque than he really has in his account. 3. Economic failure: This is also known as bankruptcy and it is brought about by a court of law declaration on an individual who is unable to fully pay the debts he owes to the creditors. When such an individual presents a cheque, it will be dishonored by the bank. 4. When the amount written in words differs from the amount in figures, the cheque will positively be declined by the bank (Tolley & Norman 2014). 5. Staleness can also lead to a bank dishonoring a cheque. This refers to the cheques that have been delayed for six or more months since their due date appearing in them. When such a cheque is presented in the bank, it will be rejected. 6. A bank can also dishonor a cheque when ordered by the drawer no to issue the payment (Lakin 2011). 7. An account of a person which has been frozen by a court of law order will not be allowed make payment via bank. Therefore, a cheque bearing the number of the frozen account will be dishonored. 8. Signature irregularities: This refers the condition where the signature specimen(s) provided by the drawer is different from the one signed on the cheque. The bank cannot honor such cheques. 9. A cheque may have some sections which have been cancelled out and the bank may seek further attention from the drawer. Such cheques will be dishonored with the exception of the circumstance where the drawer has signed against each part where he has cancelled. 10. Where the drawer dies prior to the presentation of the cheque and the bank knows about the death, the cheques that will be presented in the name of the deceased will be dishonored until the bank has to gather more information about it before honoring the cheques (Lakin 2011). 4. Remedies to affected parties Once the cheque has been dishonored by the bank, it does not mean that it is the end of it. The law provides for the process of following up the cheque and correction of errors to ensure fairness to the parties in the deal. The following represents the legal process to be followed in the case of dishonoring of a cheque (Waite 2013) ‘Cheque Return Memo’ will instantaneously be issued by the bank when a cheque has been dishonored to the account holder stating the reason as to why no payment has been done. If the cheque holder believes that a second presentation of the cheque will lead to it being honored, he will do that in a less than 3 months period. The time is counted from the date appearing on the face of the cheque. However, the drawer can be sued legally by the holder of the cheque if he does not pay but this cannot be done if the cheque was drawn illegally (Comisky & Zubowicz 2006). Dishonoring a cheque is a criminal offence which is severely punishable by the law but the drawer may be given another chance to write a genuine cheque in form of a written note from the court of law. The drawer is given specific number of days to write to the bank the cheque return memo containing all the details of the dishonored cheque and order the bank to pay the payee the stated amount within the days stated by Act of the laws. Failure to this the payee has the legal right to prosecute the drawer criminally in the court of law for which the defendant can get a monetary penalty or serve term in prison and sometimes a combination of the tow (Oliyide 2008). The settlement may also be carried outside the court of law. This is done through compounding. This is where the party being sued and the complainant will write to the court of law to close the proceedings or drop the charges (Chandler & Gely 2011). In the case where there is agreement between the two parties, the defendant will be prosecuted in the court of law. If guilty as charged per the verdict the offender will get a monetary penalty or serve a term in prison as per the Act of the law. If the offence has occurred more than once, the account may be frozen or closed (Tolley & Norman 2014). There are exception cases for tis where the defendant will be not be prosecuted for the offence. The cases are; whereby the issuing of the cheque was compromising or compromise agreement (lacks the payment due or the debt), where the signatures were not matching (the signature specimen in the bank account having insufficient funds is not the same as the one on the cheque) and if the cheque was dishonored on the grounds that it was presented more than once (where the cheque had been honored in the past and has been presented again expecting another payment) (Schuh & Stavins 2010). 5. Conclusion Cheques are important in the recent modern day process of making transactions involving large amounts of cash since the cheque relieves the burden of carrying lump sums of cash which is risky. A well written cheque is accepted by the bank, processed and payment done as per the maturity date and the presentation of the cheque. However, if there is a mistake done whether deliberate or accidental against the regulations guiding cheque payments, a cheque may bounce or be dishonored. Dishonoring a cheque is a criminal offence which is severely punishable by the law but the drawer may be given another chance to write a genuine cheque in form of a written note from the court of law. The drawer is given specific number of days to write to the bank the cheque return memo containing all the details of the dishonored cheque and order the bank to pay the payee the stated amount within the days stated by Act of the laws. It is therefore important to follow the legal requirements as per the laws of the state. References Schuh, S, & Stavins, J 2010, 'Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics', Journal Of Banking & Finance, 34, 8, pp. 1745-1758,  Tolley, S, & Norman, T 2014, 'Advisers face writing blank cheque to pay for guidance', Money Marketing, 1447, pp. 4-6,  Tolley, S, & Norman, T 2014, 'Advisers face writing blank cheque to fund Osborne's guidance guarantee', Money Marketing (Online Edition), p. 12,  Chandler, T, & Gely, R 2011, 'Card-Check Laws and Public-Sector Union Membership in the States', Labor Studies Journal, 36, 4, pp. 445-459, Oliyide, O 2008, Three decades of culpability for dishonored cheques Banking Law Journal, 125, 10, pp. 954-996, Waite, M 2013, Check Fraud and The Common Law: At The Intersection Of Negligence And Unification of Commercial Law', Boston College Law Review, 54, 5, pp. 2205-2243, Comisky, H, & Zubowicz, C 2006, 'The Law of Criminal Background Checks', Employee Relations Law Journal, 32, 3, pp. 66-85,  Lakin, M 2011, 'Checks and balances: Doctors, law enforcement spar over prescription-drug database' Wettschreck, J 2010, 'Law enforcement agencies line up for chance to grab bad check writer Read More