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The cheque, however, continues to be of crucial importance to the UK banking system. In total, nearly twelve million cheques are written every day and 83% of adults have an account with a cheque facility at a bank or building society in UK.
Definition
Cheque is a specialized form of bill of exchange and is defined in the 1882 Act as ‘bill of exchange draw on a banker payable on demand’ . In addition to that, a cheque must match the definition of bill laid down by the Bills of Exchange Act 1882 s 3(1) ‘an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.’ The 1882 Act nevertheless remains the underlying authority for most aspects of cheque usage, the amendments of substance being contained in the Cheques Act 1992 will be made discussion hereinafter.
There are two basic functions cheques served. Firstly, they allow a customer maintaining a current account to obtain repayment of the fund lent by him to his bank. In this instance, the customer would draw the cheque payable to his own order and cash it at the bank counter. Secondly, they enable the payment of an amount due from the drawer to a third party. The cheque is drawn in favor of the third party payee and is passed to him. The cheque is the customer’s instruction to the bank to pay a specified amount to the payee or transferee.
Security and Safety
The discussion here will be concentrated on the growing concern of the safety of cheques as a means of payment, which has been reflected in the Jack Committee Report and Cheques Act 1992.
Sometimes truth is stranger than fiction. Steven Spielberg’s latest thriller, now is out in the cinemas, is about con man Frank Abagnale who, in the 1960s, charges into a life of crime starting from a few forged cheques for a few measly dollars, to be the youngest criminal to make the FBI’s 10 most wanted list. And it’s true story.( the offence of forgery still happens everyday) There are no definition of the words ‘forged’ and ‘forgery’ used in ss24 and 60 of the Bills of Exchange Act. The Forgery and Counterfeiting Act 1983 defines the offence of forgery as follows:
‘1. A person is guilty of forgery is he makes a false instrument, with the intention that he or another shall use it to induce somebody to accept it as genuine, and by reason of so accepting it to do or not to do some act to his own or an other person’s prejudice’.
Two situations in which a bank pays a forged cheque without a valid mandate will be considered, (1) cheques bearing a forged signature of the drawer, and (2) cheques on which the payee’s indorsement is forged by a third party.
(1) forged signature of the drawer
The principles are illustrated by three cases. Firstly, in Brown v. Westminster Bank Ltd, the servants of an aged woman forged her signature on cheques drawn on her current account. The branch manager called on the woman on several times to enquire about the genuineness of the cheques but was assured by her that all was well. In Brown case, the bank was able to plead an estoppel on the basis of the customer’s explicit representation. Secondly, in Greenwood v. martin bank Ltd. a wife forged her husband’s signature on cheques drawn on his account with the defendant bank. Initially, the husband accepted his wife’s explanation for her conduct and agreed not to disclose the forgeries to the bank. Some time thereafter, he discovered that the wife’s explanation had been false. When he threatened her with exposure, she committed suicide. The husband’s action, disputing the bank’s right to debit his account with the forged cheques, failed. It was held that he was under a duty to make full disclosure to the bank as soon as he discovered the initial forgeries. His silence had lulled the bank into the belief that the signatures executed by his wife were genuine. The husband’s silence further precluded the bank from instituting proceedings during the wife’s life. Upon her death, the husband’s liability for her frauds terminated. In effect, the bank lost a right of action as a result of the husband’s silence. Thirdly, There is no general duty on the customer to check his bank statements and in Tai Hing Cotton Ltd v. Liu Chong Bank Ltd & Others. In the Tai Hing case, the plantiff company authorised its banks to pay cheques drawn on the company signed by the managing director or nominated signatories. The express terms of the contracts required that the company notify the banks within a specified time of any errors in its monthly statements. Between November 1974 and May 1978 an accounts clerk forged the managing director''s signature on about 300 cheques totalling about HKUSD 5.5 million. The banks honoured the cheques and debited them against the company''s accounts. The company''s internal audit system did not detect the forgeries until May 1978 when the company issued a writ in the High Court of Hong Kong claiming that the banks were not entitled to debit their accounts.
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