Essentials of Cheque

Handling & Essentials of Cheques

PARTIES TO A CHEQUE

ESSENTIAL POINTS IN WRITING

1.            UNCONDITIONAL ORDER

2.            BY ONE PERSON TO ANOTHER

3.         SIGNED BY THE PERSON GIVING IT

4.            PAYABLE ON DEMAND

5.            SUM CERTAIN IN MONEY

6.            PAYABLE TO SPECIFIED PERSON ON BEARER:

i.              BEARER CHEQUES

ii.             ORDER CHEQUES

Handling & Essentials of Cheques

Cheques on account of their special qualities are at widely used in setting financial transactions. They are easy to handle easy to negotiate and to acquire title.

A cheque has been defined in Sec 6 of Negotiable Instruments Act 1881 as under: -

"Cheques is a bill of exchange drawn on a specified banker and hot expressed to be payable otherwise than on demand"

Therefore, a cheque must have all the essential characteristics of a bill of exchange defined as under in Section 5 of Negotiable instrument Act 1881.

" A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay (on demand or at a fixed or determinable future time) a certain sum of money only to, or the order of a certain person or the bearer of the instrument."

PARTIES TO A CHEQUE;

The person who draws a cheque is called the drawer: the banker on whom the cheque is drawn is called the drawee banker or the paying banker;

and the person to whom the amount of cheque is directed to be paid is known as the payee.

The drawer may draw a cheque payable to himself; in that case the drawer and payee are the same person.

ESSENTIAL POINTS IN WRITING

Writing includes print and a cheque made out on a typewriter would be valid. Customers are encouraged to draw cheques in ink. Banker should return cheques prepared in lead pencil unpaid. Bankers usually supply their own printed cheque form for use of the customers.

UNCONDITIONAL ORDER: The language used in a cheque should be such as to convey an unconditional order. If the banker is ordered to pay upon the condition of payee's signing the receipt, then the instrument is a conditional order and thus not a cheque. 'But if the order regarding receipt is too construed as addressed to the payee, the instrument can be treated as a cheque.

BY ONE PERSON TO ANOTHER: Cheque is drawn by one person to another but in case of banker's draft it cannot be treated to have been addressed by one person to another. The holder of such an instrument has the option to treat it either as bill of exchange or a promissory note.

SIGNED BY THE PERSON GIVING IT: An instrument will be valid only if it is signed by the drawer (account holder) or some one who has been specifically authorized to sign on his behalf. At present banker in Pakistan do not pay cheques bearing a printed facsimile reproduction of signature.

PAYABLE ON DEMAND: A cheque is payable on demand if it expressed to be payable in that manner. The demand should be made within a reasonable time. In Pakistan, by practice, bankers require the demand be made within six month from the date of its issue.

SUM CERTAIN IN MONEY: The amount mentioned in cheque and ordered to be paid should be definite or certain. There should be no doubt. In case the amount in words and figures differ in cheque, the some denoted by the words is the amount payable. However, in practice banker returns such cheques with the objection" amount in words and figures differ".

PAYABLE TO SPECIFIED PERSON ON BEARER: The drawer of a cheque can make it payable to the bearer or any specified person. If customer makes cheque payable to imaginary or fictions persons as person as "to cash or order" the banker will treat it valid order and payable to bearer; from the foregoing discussion we see that the cheques can be classified in to two categories.

a)  Bearer cheques

b) Order cheques

BEARER CHEQUES The drawer as payable to the bearer as marks these cheques

"Pay to Mr.— —or bearer"

The effect of such a marking is that the banker is thereby directed to effect its payment to any one who presents it.

ORDER CHEQUES

These cheques, which are drawn payable to a specific person or to his order e.g.

"Pay to Mr. or Order"

In this case Mr. X has the option to get it encashed from the bank or to transfer the cheque to some other person. In the latter case he may write as under on the reverse of the cheque:

"Pay to Mr. B or order'

X signed—or bearer"

"Pay to Mr.—

The effect of such a marking is that the banker is thereby directed to effect its payment to any one who presents it.