In the United Kingdom (UK), cheques are considered legal documents, and their use is governed by the Bills of Exchange Act 1882 and the Cheques Acts of 1957 and 1992. Around 0.5% of cheques of all cheques are returned/bounced in a day in the UK.
According to Section 48 of the Bills of Exchange Act 1882, upon receiving the notification of dishonour of cheque from the drawee bank, where the cheque is marked as ‘refer to the drawer’ as there are insufficient funds in the account, the cheque bearer should instantly contact the issuer of the bounced cheque with notice of dishonour received from the drawee bank once the notice of dishonour has been provided. The drawee bank can charge s £25 for bouncing a cheque from the drawer’s account; it depends on the bank’s policy. After a lapse of seven days, the claimant then has the choice of whether to issue court proceedings, along with an application for summary judgment, or he can issue a winding-up petition against the debtor company or a bankruptcy petition against the drawer of the cheque if he believes the debtor is insolvent unable to pay their debts as outlined in sections 123/222 of the Insolvency Act 1986. The legal costs are only recoverable, save for fixed legal costs quantified by the court, where the outstanding sum is £10,000 or more. The procedure is quick and less expensive. However, starting a claim to recover money in the County Court or High Court can be an extensive process, but this type of claim is another option available to businesses and individuals for bounced cheques. The only defences to a claim for a dishonoured cheque are simply limited to fraud, misrepresentation, duress, complete incapacity, or that there has been a total failure of consideration. There is no legal or other defence to a claim for cancelling a cheque because by giving someone a cheque, a drawer is essentially promising the cheque bearer that he will pay him a particular fixed value.
Legal implications for bad cheques vary from state to state in the US, depending upon the circumstances. In various states in the United States, a Bad Cheque Restitution Program (BCRPs) allows beneficiaries of a bad/bounced cheque to collect the funds from the office of the local district attorney, irrespective of the value of the claim. An agency administered by the district attorney will track the cheque of the drawer by trying to gather the funds in exchange for avoiding criminal prosecution. The cheque drawer will cover the cheque amount, plus all fees to which the beneficiary is legally entitled. Usually, if cheque writer can cover up their bad credits in sixty days, all charges will be dropped.
In some jurisdictions, for criminal prosecution on a bad/bounced cheque, there should be some fraud component present in the issuance of the cheque. In some U.S. states, if the cheque drawer informs the party, they are uttering the cheque to that, it will not clear at the current time (such as asking someone to hold a cheque for a few days), if the cheque bounces, they can still be sued for the value of the cheque, but warning the beneficiary before acceptance that the cheque will not clear immediately contradicts the element of fraud and prevents criminal prosecution. For similar reasons, a post-dated cheque will not usually support a conviction for issuing a non-sufficient funds (NSF) cheque.
The sternness of being convicted of this crime depends on how the crime is defined under state law. In some cases, there may be criminal and civil implications. In other, there may only be civil penalties. In many states, the criminal provisions related to bad cheques are not applicable to post-dated cheques. Because post-dated cheques promise to pay in the future, they are not technically viewed as cheques. It has generally been held that post-dated cheques are not within the scope of most states’ bad cheques laws in the US. In New York, a person faces up to three months in jail and a fine of up to $750 based on the cheque’s face value. In California, a person may face up to a year in jail if convicted of the crime. In Texas, the penalties are particularly harsh, where writing a bad cheque is considered a felony. A person may face between 180 days to two years of imprisonment in a state jail and be responsible for a fine of up to $10,000.
Some states have increased or triple damages so that a person will have to pay three times the cheque’s face value, subject to certain minimum or maximum payments.
In addition to the potential criminal consequences, a person may also be subject to civil punishments. The bank or the person who received the bad/bounced cheque may sue in civil court. The defendant shall be required to pay for the judgment, including court costs and attorney’s fees.
Individuals who bounce cheques may have to pay a significant fee. Many banks charge between $25 and $35 for bounced cheques. This fee applies to each bounced cheque. Banks generally can process transactions in any particular order as long as they follow the procedures stated in their customer agreement. A notice of dishonour shall be issued to the drawer within thirty days of dishonour of cheque occurs.
If a person bounces cheques repeatedly, the bank may decide to close the account. This bank’s action can create complications and challenges if public benefits are deposited into this cheque or a person’s wages are automatically deposited. Certain companies report patterns of bad cheque writing and share this information with banks and retailers, so a retailer may refuse to accept a cheque from someone who has not even bounced a cheque with that particular company. This can also cause future accounts to be denied. A person’s credit report may show signs of bad cheque writing if the cheque is sent to collections. A person may develop a criminal record due to these charges, which can follow him/her around for the rest of his/her life. Moreover, he or she may be denied particular employment due to the criminal history or bad credit.
Hynes v Peter Maloney, NIIT 83_10IT (19 November 2010), Industrial Tribunals Northern Ireland decided. The claimant filed a claim before the Industrial Tribunals Northern Ireland. The Tribunal severed notice of hearing upon the respondent, but the respondent did not appear before the court to defend the case.
The court heard the case, and the claimant produced evidence against the respondent that the claimant is entitled to £503.86 regarding unpaid wages and £222.80 regarding unpaid holiday pay. Before initiating legal proceedings against the respondent, the claimant supplied details of his claim in writing. The cheque of value £135.96 issued by the respondent to the claimant in part-payment got bounced.
The court, after hearing the facts of the case, held that it is satisfied with the evidence produced by the claimant and the claimant is entitled to the sum of £503.86 in respect of unpaid wages and the sum of £222.80 in respect of unpaid holiday pay, and order that the respondent does pay the said sums to the claimant.
AG -v- Smith 16-June-2006 JRC 085 (16 June 2006), decided by Jersey, Royal Court (Samedi Division). Defendant failed to contribute return or pay the contribution due; the total owed being £1,117.50. He was summonsed to appear in the Magistrate’s Court but failed to appear. He had left the Island already.
The defendant was a St Clement’s Golf Club member and was voted onto the General Committee as Treasurer. The Club’s bank balance at that time was approximately £16,000 in credit. Defendant misrepresented to members on nine occasions that the Club’s bank balance was healthy – between about £15,000 and £22,000 in credit. On 28th October 2005, a Club cheque for £650 bounced. This led to the discovery that the Club was, in fact, £91.37 overdrawn. Police were contacted on 4th November 2005, the same day on which the defendant left the Island. The defendant was brought back to Jersey on a warrant in January 2006. He served the equivalent of 7 months 13 days in custody on remand at the date of sentencing.
Reid v R & K Haulage Ltd NIIT 07394_09IT (24 Feb 2010), decided by Industrial Tribunals Northern Ireland.
The respondent is a limited company, is a small haulage contractor based in Portadown. The claimant is an HGV driver and was working with the company as a driver. The appellant was told that he would be paid £500 net for a five-day week from Monday to Friday and £100 for any shift on a Saturday or Sunday. This amount was to be paid every four weeks in arrears. The respondents dismissed him without issuing notice or paying in place of notice. He was told his wages would be paid into his bank on Friday, 2 October 2009. They usually use to pay his wages in the form of either a cheque for £400 together with £100 in cash or a cheque for £300 together with £200 in cash.
The claimant was underpaid wages by £200 in respect of two weeks in August and September. Cheques for £400 and £500 respectively for the weeks ending 19 September and 26 September were returned to the claimant by the bank marked “refer to a drawer,” and the claimant’s wages of £300 for 27 to 29 September were never paid. The claimant was not paid for six-weekend shifts amounting to £600.
The claimant was charged £63 regarding various charges by his bank on each of seven occasions between 24 July and 30 September 2009 when wages cheques bounced/dishonoured. His bank also charged him £150 on various occasions on which direct debits failed during this period due to the late payment or non-payment of wages.
After evidence and hearing, the court held about the non-payment of wages and imposition of bank charges due to bounced cheques that, whether as a result of a failure to make any attempt to pay the relevant wages or as a result of a cheque being returned by the bank marked “refer to a drawer,” would result in the claimant facing financial difficulties including the imposition of various bank charges. Therefore, the court concluded that the claimant is entitled to reimburse these sums regarding his breach of contract claim and unlawful deductions from wages and ordered the respondent to pay the claimant £3,291.
Black and Co vs. Burnside (1866) SLR 3_1 (1/11/ 1866), decided by the Scottish Court of Session. The defender drew a cheque upon a bank with which he had an account, but in which at the time he had no money; that he put this cheque into the hands of Nisbet, not for the purpose of his taking it to the bank, but that he might get money for it where he could. Being acquainted with the plaintiffs, Nisbet got them to cash the cheque which, on being sent to the bank upon whom it was drawn, was dishonoured. The court held that it seems from the proof that nothing was said to the plaintiff of the nature of the cheque as having been drawn upon a bank in which the drawer had no funds. On the contrary, it appears that Nisbet told the pursuers that the defender was a responsible party. The cheque having been dishonoured, the defender needed to be made aware of the incident immediately.
It also appears that the plaintiffs came into personal contact with Nisbet, by whom they were told that the cheque would be honoured—meaning that the defender would in due time pay the same. There is some evidence, too, that before the bankruptcy of Nisbet, there was a meeting between the plaintiffs and the defender at which the latter was told that payment of the cheque would require to be made. It is said that there has been so much delay, the defender has been unable to get payment of the cheque from Nisbet or his estate. It appears to the court that after he got notice of the dishonour of the cheque, it was the defender’s duty to have looked after receiving it from Nisbet. However, it is still further said that this cheque had been genuinely paid to the plaintiffs by Nisbet in the arrangement of some bill transactions. Court held further that the evidence shows that Nisbet’s amount of the bills granted to the plaintiffs was due to them all together regardless of the cheque. Upon the whole, therefore, the court issued a decree in favour of the plaintiffs.
Hymas Site Services Ltd v Revenue & Customs UKVAT V19812 (06 October 2006), decided by United Kingdom VAT & Duties Tribunal. The Appellant has appealed against a default surcharge for £2,250 imposed regarding its VAT accounting period ended on 31 March 2006. The surcharge was imposed because the Appellant failed to pay all the VAT due from it related to that period by the due date. The Appellant took this contention that he has a reasonable excuse for its failure within the meaning of section 59(7)(b) of the Value Added Tax Act 1994. Hence, it is appealed that the Appellant should not be held liable for the surcharge.
After making a loan application online, Mr Anderson drew a cheque for £15,000, sent it to HMRC, and went on holiday. He assumed that the £15,000 would be in his account within four working days of Monday, 24 April 2006. The due date was Sunday, 30 April 2006, so that would have allowed time for the tax to have been paid. So the cheque he had drawn ought to have been met. On his return, to his surprise, he found that the cheque had been dishonoured. He then contacted Barclays, finalized the loan, and remitted the £15,000 to HMRC by BACS. However, by that time, the due date for payment of the VAT had passed. In consequence, only £1,532.89 of the tax due was received by HMRC by the due date. The surcharge in dispute was imposed at the rate of 15 per cent in respect of the balance.
Court held in its judgment that the payment of VAT by cheque on the assumption that loan monies would have been credited to the account, cheque in consequence dishonoured, a duty upon taxpayers to ensure that cheque will be met, it is not a reasonable excuse for late payment shown and he is not free from liability to pay the surcharge of £2,250. The appeal was dismissed.
I & B Cheque Cashing Corp. v Jensen, Decided on April 1, 2011, by
Civil Court of the City of New York, Kings County. The claimant’s President, Andrew Siegel, testified that the claimant (a commercial cheque cashing establishment) cashed two cheques, each over $5,000, for the defendant. The New York Carting, Inc. drew the cheques and transferred and indorsed the defendant to the claimant. After that, the claimant attempted to deposit the cheques, but they were returned with the indication “No Account” and stamped “non-negotiable.” The claimant was charged a bank fee of over $100 for each dishonoured cheque.
In support of this action, the claimant cites UCC §3-415 and contends that it is permitted to be compensated by the defendant for the dishonoured cheques as a holder in due course.
The defendant received the cheques as payment for the plumbing services he provided. He stated that he asked the claimant’s employee “to cheque the cheques” because he did not know the person who gave them. The defendant admitted that after the cheques were cashed, Chuck, the claimant’s employee, notified him that the claimant could not deposit the cheques.
The court held that there is no evidence that the appellant had genuine knowledge of bad faith or notice of any dues or defences or anomalies regarding the cheques, notwithstanding the defendant’s testimony regarding verification. Hence, the claimant is a holder in due course entitled to seek recourse from the defendant for the amount of the cheques. However, according to the UCC section that the claimant cited as well as New York law, the complainant is responsible for proving that he gave notice of dishonour to the defendant within the required time. UCC §3-415; NY UCC §3-508. The claimant failed to prove that he had notified the defendant. The defendant’s confession that he received oral notice of dishonour from the claimant’s employee is irrelevant since there is no indication of when this notice was received.
Based on the reliable evidence cited at trial, the court held that the plaintiff failed to endure its burden of proving that the respondent is liable for the amount of the cheques.
The judgment was pronounced in favour of the respondent. The complaint was dismissed.
Menicucci Villa & Assoc., PLLC v Alovic, decided on July 25, 2012, by Supreme Court, Appellate Term, Second Department, 2nd, 11th, and 13th Judicial Districts. Plaintiff appealed against the order of the Civil Court of New York City, Richmond County. The order denied the plaintiff’s motion for summary judgment in lieu of complaint and dismissed the action.
The plaintiff filed a complaint regarding a bounced cheque for a summary judgment in lieu of the complaint (CPLR 3213). The plaintiff sought judgment for $20,000 based on a dishonoured cheque.
The Supreme Court altered the judgment of the civil court by striking the provision dismissing the action and by providing that plaintiff is directed to serve and file a complaint within 20 days after service of a copy of this decision and order with notice of entry, with the answer to be served within 20 days after the service of the complaint; as so modified, the order is affirmed, without costs.
1/2 Price (Half-Price) Cheques Cashed v. United Automobile Ins. Co. Adjudicated by The Supreme Court Of Texas (2011)
Half-Price Cheques Cashed brought a suit in a Dallas County justice court asserting breach of contract based on the obligation owed by the drawer of a cheque and requested attorney’s fees. The county court ordered in favour of Half-Price and awarded damages along with an attorney’s fee. The UAIC appealed the attorney’s fees issue to the court of appeals, the court of appeal overturned the county court at law on that issue, the court of appeals stated that Sec 38.001(8) is not applicable to an action on a dishonoured cheque under Sec 3.414 since such a claim is purely statutory and is not a claim on a contract.
The issue in the case was shall a holder of a dishonoured cheque could recover attorney’s fees under Texas Civil Practice and Remedies Code Sec 38.001(8) in an action against a drawer of a cheque under Sec 3.414. The court held in its The claim made by Half-Price was a suit on a breach of contract to which Sec. 38.001(a) applied, and the application of Sec 38.001(8) to the claim did not disorder the application of Article 3 of the Uniform Commercial Code’s statutory scheme.
Consequently, the Supreme Court reversed the judgment and remanded the case to the trial court to determine attorney’s fees.
State v. Schouweiler, decided by the Supreme Court of the State of Minnesota (2016)
The Appellant was charged with issuing a dishonoured cheque in violation of the dishonoured cheque statute when her bank returned her cheque for past-due property taxes for insufficient funds. The district court discharged the criminal complaint, holding that the appellant’s cheque for past-due property taxes met the statutory exception for a cheque given for a past consideration because there was no concurrent exchange of goods or services for the cheque. The court of appeals reversed.
The appellant filed for review, and the review was granted. The Supreme Court reversed the order of a court of appeal and held that a cheque issued for a past consideration refers to a cheque given for a good or service that was received in the past; and because the appellant’s cheque for past-due property taxes was given, in part, for government services provided in the past year, her cheque was given for past consideration.
State v. Cox (2011), decided by the Supreme Court of the state of Minnesota
Diane Cox (the appellant) was charged with issuing dishonoured cheques with a value of more than $500 in violation of the dishonoured cheque statute, which is a felony. Cox filed a petition to dismiss, arguing that the sentencing disparity between the dishonoured-cheque statute and the theft-by-cheque statute violated her constitutional right to equal protection of the law because issuing a dishonoured cheque is a lesser-included offence of theft-by-cheque yet is punished more harshly than the greater offence. The district court denied Cox’s motion but certified to the court of appeals the question of whether the inequality in the severity of punishment between the two statutes, which questionably anticipate the same acts performed under the same circumstances by persons in like situations, constitutes an equal protection violation as applied to the defendant and those similarly charged. The appellate court answered the question in the negative. The Supreme Court declared that Cox is not similarly positioned to a defendant who commits theft by cheque because her conduct would not support a conviction for theft by cheque, and therefore, the appellant was not denied equal protection of the law.