Post-dated cheque

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In banking, a post-dated cheque is a cheque written by the drawer (payer) [1] for a date in the future.

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Whether a post-dated cheque may be cashed or deposited before the date written on it depends on the country. A Canadian bank, for example, is not supposed to process a post-dated cheque and if it does so by mistake, the cheque writer may ask their bank to correct the error. In the United States and the UK, post-dated cheques are negotiable instruments and can be drawn upon at any time, while in India and Australia post-dated cheques are not payable until the date written on the cheque.

Practices in various countries

Australia

Under Australian law a post-dated cheque is valid under the Cheques and Payment Orders Act 1986.

16. (1) Where a cheque, or any indorsement of a cheque, is dated, the date shall, unless the contrary is proved, be presumed to be the day on which the cheque was drawn or the indorsement made, as the case may be.

(2) A cheque is not invalid by reason only that- (a) it is not dated; (b) it is antedated or post-dated; or (c) the date it bears is a Sunday.

(3) For the purpose of determining whether a post-dated instrument is a cheque, the fact that the instrument is post-dated shall be disregarded.

(4) A cheque is not incomplete or irregular on its face by reason only that it is post-dated (whether or not the date has arrived). [2] [3]

As well, under Section 61 of the Act, part 2 reads;

Where a demand for payment of a cheque is made before the date of the cheque arrives, the cheque shall not, by reason of the demand, be taken to have been duly presented for payment.

The Commonwealth Bank's rules and conditions for cheques (2014: Section 1.7.6 'Dishonour of cheques') clearly state that a cheque will be dishonoured if it is presented before the post-date as written on the cheque for the reason that, '...the cheque bears a date that is in the future. This is known as a post-dated cheque and it cannot be paid until that date arrives.' [4]

While this is a sound interpretation of Australian law, for insurance reasons the bank protects itself from possible attack with the condition (2014: Section 1.7.1 'Using your cheques '): 'You authorise us to pay a post-dated cheque (one which is dated with a date in the future) drawn on your account and presented for payment at any time before the date of the cheque arrives.' [4]

The Australian Taxation Office require that cheques made for tax payments 'must not be post-dated'. [5] The Australian Federal Police in their information to small businesses on avoiding fraud advise: 'Do not accept post-dated or pre-dated cheques'. [6]

Brazil

In Brazil, the drawer may seek damages in Justice if their cheque is cashed in before its due date, according to the jurisprudential orientation of the Superior Court of Justice, as per Summary No. 370 of such court. [7]

Canada

Under the clearing rules of the Canadian Payments Association, a post-dated cheque cannot be cashed prior to the date written on it. If a Canadian financial institution inadvertently accepts and processes a cheque before the due date, the cheque writer may ask their financial institution to return the amount until the day before the cheque should have been cashed. [8]

India

Post-dated cheques in Indian law are considered under the Negotiable Instruments Act, 1881. Post-dated cheques are common and enforceable. [9] In 1998, the Supreme Court ruled that a post-dated cheque is a bill of exchange and does not become payable on demand until the date written on the cheque

A "post- dated cheque" is only a bill of exchange when it is written or drawn, it becomes a "cheque" when it is payable on demand. The post-dated cheque is not payable till the date which is shown on the face of the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a "cheque" till the date when it becomes "payable on demand". [10] [11] [12]

In India the issue is complex [13] and mainly revolves around section 138 of the Negotiable Instruments Act, 1881. The two major issues before the courts are:

1) Post-dated cheques that are stopped by the bank or issuer, causing problems for whoever is to be paid by the cheque for goods or services provided [14] and;

2) the reverse, in which a person is promised goods or services but does not receive them and has to stop the cheque.

Serbia

In Serbia post-dating cheques is a customary practice in the retail industry. The retailers will usually accept post-dated monthly cheque payment installments up to several months in advance allowing their customers to pay for expensive goods as a sort of a line of no interest credit.

UK

In the UK the legislation is clear; 'A cheque is a bill of exchange drawn on a banker payable on demand'. [15] Under the Bills of Exchange and Banking Act 1882, part 10, bills of exchange are payable on demand and in part 13, 'A bill is not invalid by reason only that it is ante-dated or post-dated.' [16] In the United Kingdom, post-dating a cheque carries no legal weight and so such a cheque can be cashed before the due date. However, a bank may refuse to honour a cheque if the post-date is noticed; otherwise, the payer has no right to take any form of legal action against the bank for letting the cheque be processed. [17] [18]

It is common for the terms and conditions of current accounts to state that post-dated cheques should not be written and will be dishonoured if detected. [19] [18] In some instances a post-dated cheque may be retained by the bank and paid on the due date if that date is only a few days away. [20] Some UK organisations do not accept post-dated cheques [21] as well as some Government Departments, [22] while paying income tax or voluntary National Insurance may only be done with post-dated cheques with permission from HM Revenue and Customs. [23] [24]

United States

In the United States, national banks are permitted to pay checks even though payment occurs prior to the date of the check. According to the Comptroller of the Currency: "A check is a negotiable instrument—the payee, the person to whom the check is written, may negotiate it through the banking system at any time" and check writers seeking redress must restrict themselves to pursuing the payee. [25]

Nonetheless, if "the customer has given notice to the bank of the postdating describing the check with reasonable certainty" the Uniform Commercial Code requires that the notice to be honored. [26] In practice, whether the check writer has any redress against the financial institution where the payee deposited the check may depend on whether it can be shown that the check was accepted over the counter without examination. [27]

See also

Related Research Articles

<span class="mw-page-title-main">Dishonoured cheque</span> Cheque that a bank declines to pay

Dishonoured cheques are cheques that a bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honour a cheque, with non-sufficient funds (NSF) being the most common one, indicating that there are insufficient cleared funds in the account on which the cheque was drawn. An NSF check may be referred to as a bad check, dishonored check, bounced check, cold check, rubber check, returned item, or hot check. In England and Wales and Australia, such cheques are typically returned endorsed "Refer to drawer", an instruction to contact the person issuing the cheque for an explanation as to why it was not paid. If there are funds in an account, but insufficient cleared funds, the cheque is normally endorsed “Present again”, by which time the funds should have cleared.

<span class="mw-page-title-main">Money order</span> Payment order for a prepaid amount of money

A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque.

Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.

A giro transfer, often shortened to giro, is a payment transfer from one bank account to another bank account and initiated by the payer, not the payee. The debit card has a similar model. Giros are primarily used in Europe; although electronic payment systems exist in the United States and Canada, it is not possible to perform third-party transfers with them. In the European Union, there is the Single Euro Payments Area (SEPA), which allows electronic giro or debit card payments in euros to be executed to any euro bank account in the area.

<span class="mw-page-title-main">Promissory note</span> Legal instrument in which one party promises in writing to pay a sum of money to the other

A promissory note, sometimes referred to as a note payable, is a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms and conditions.

<span class="mw-page-title-main">Hundi</span> Indian financial instrument

A hundi or hundee is a financial instrument that developed in Medieval India for use in trade and credit transactions. Hundis are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. The Reserve Bank of India describes the hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order."

<span class="mw-page-title-main">Traveller's cheque</span> Medium of exchange that can be used in place of hard currency

A traveller's cheque is a medium of exchange that can be used in place of hard currency. They can be denominated in one of a number of major world currencies and are preprinted, fixed-amount cheques designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.

<span class="mw-page-title-main">Negotiable instrument</span> Contract document exchangeable for money

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a contract, which promises the payment of money without condition, which may be paid either on demand or at a future date. The term has different meanings depending on the use of the term as it is used in the application of different laws, and depending in which country and context it is used.

<span class="mw-page-title-main">Cheque</span> Method of payment

A cheque, or check is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of money stated to the payee.

A payment is the voluntary tender of money or its equivalent or of things of value by one party to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the payment is commonly called the payer, while the payee is the party receiving the payment.

A banker's draft is a cheque provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on another bank or payable through or at a bank.

<span class="mw-page-title-main">Substitute checks in the United States</span> Digital version of a banking check

The substitute check is a negotiable instrument that represents the digital reproduction of an original paper check. As a negotiable payment instrument in the United States, a substitute check maintains the status of a "legal check" in lieu of the original paper check as authorized by the Check Clearing for the 21st Century Act. Instead of presenting the original paper checks, financial institutions and payment processing centers transmit data from substitute checks electronically through either the settlement process, the United States Federal Reserve System, or by clearing the deposits based on private agreements between member financial institutions. Financial institutions that process substitute checks based on these private agreements are typically members of a clearinghouse that operate under the Uniform Commercial Code (UCC).

<span class="mw-page-title-main">Demand draft</span>

A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee).

<span class="mw-page-title-main">Check kiting</span>

Check kiting or cheque kiting is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account. In this way, instead of being used as a negotiable instrument, checks are misused as a form of unauthorized credit.

A collection item is an item presented to a bank for deposit that the bank will not, under its procedures, provisionally credit to the depositor's account or which the bank cannot provisionally credit to a depositor's account. Collection items do not create float. Payment must be received from the payor bank before the item may be credited to the depositor's account.

<span class="mw-page-title-main">Crossing of cheques</span> Method of restricting redemption of cheques

A crossed cheque is a cheque that has been marked specifying an instruction on the way it is to be redeemed. A common instruction is for the cheque to be deposited directly to an account with a bank and not to be immediately cashed by the holder over the bank counter. The format and wording varies between countries, but generally, two parallel lines may be placed either vertically across the cheque or on the top left hand corner of the cheque. By using crossed cheques, cheque writers can effectively protect the instrument from being stolen or cashed by unauthorized persons.

<span class="mw-page-title-main">Warrant of payment</span> Written order instructing or authorizing payment

In financial transactions, a warrant is a written order by one person that instructs or authorises another person to pay a specified recipient a specific amount of money or supply goods at a specific date. A warrant may or may not be negotiable and may be a bearer instrument that authorises payment to the warrant holder on demand or after a specific date. Governments and businesses may pay wages and other accounts by issuing warrants instead of cheques.

<span class="mw-page-title-main">Cheque truncation</span> Process of scanning cheques to produce their electronic copies

Cheque truncation is a cheque clearance system that involves the digitization of a physical paper cheque into a substitute electronic form for transmission to the paying bank. The process of cheque clearance, involving data matching and verification, is done using digital images instead of paper copies.

Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force largely unchanged.

<i>Canada Trustco Mortgage Co v Canada</i> Supreme Court of Canada case

Canada Trustco Mortgage Co v Canada, is a significant case of the Supreme Court of Canada on the intersection of the Income Tax Act and the Bills of Exchange Act and the ability to seize funds that have been deposited by a debtor into an account held at a financial institution in Canada.

References

  1. ↑ "Drawer Definition". Duhaime.org.
  2. ↑ "Cheques and Payment Orders Act 1986". Legislation.gov.au. Retrieved 25 November 2021.
  3. ↑ "Electronic clearing and settlement". Archived from the original on 2015-03-05. Retrieved 2015-01-04.
  4. 1 2 "CommBank Business Transaction and Saving Accounts : Terms and Conditions : Effective 13 July 2021" (PDF). Commonwealth Bank . Retrieved 2021-11-25.
  5. ↑ "How to pay | Australian Taxation Office". Archived from the original on 2014-12-30. Retrieved 2015-01-04.
  6. ↑ "Fraud - ACT Policing". Archived from the original on 2015-01-04. Retrieved 2015-01-04.
  7. ↑ "Superior Tribunal de Justiça - Apresentação do cheque pré-datado antes do prazo gera dano moral". Archived from the original on 2012-07-25. Retrieved 2012-02-18.
  8. ↑ Post-dated cheques Financial Consumer Agency of Canada
  9. ↑ "Yahoo Search - Web Search". In.search.yahoo.com. Retrieved 25 November 2021.
  10. ↑ "Bounced cheques and section 138 of NI Act". Moneylife.in. Retrieved 25 November 2021.
  11. ↑ "Kerala High Court : J. Krishnan Nair vs P. Jaseentha And Anr. on 30 June, 1998". Indiankanoon.org. Retrieved 25 November 2021.
  12. ↑ "Archived copy". Archived from the original on 2015-01-04. Retrieved 2015-01-04.{{cite web}}: CS1 maint: archived copy as title (link)
  13. ↑ "Dishonour of Cheque - Section 138 of the Negotiable instruments Act". Vakilno1.com.
  14. ↑ "Business News Today: Read Latest Business news, India Business News Live, Share Market & Economy News". The Economic Times . Retrieved 25 November 2021.
  15. ↑ "Bills of Exchange Act 1882". Legislation.gov.uk. Retrieved 25 November 2021.
  16. ↑ "Bills of Exchange Act 1882". Legislation.gov.uk. Retrieved 25 November 2021.
  17. ↑ "FAQs | Cheque & Credit Clearing Company". Chequeandcredit.co.uk. Retrieved 25 November 2021.
  18. 1 2 "Post-dated cheques: A popular myth?". News.bbc.co.uk. 6 March 2004. Retrieved 25 November 2021.
  19. ↑ Tyler, David. "Cheques and cheque clearing". Payontime.co.uk. Retrieved 25 November 2021.
  20. ↑ "Yuill & Kyle : Debt lawyers scotland debt collection bad debt". Archived from the original on 2013-12-02. Retrieved 2013-11-24.
  21. ↑ "Gas Safe Register - Renew Registration FAQs". Archived from the original on 2013-12-02. Retrieved 2013-11-24.
  22. ↑ "The cost of a driving licence". Nidirect.gov.uk. 24 November 2015. Retrieved 25 November 2021.
  23. ↑ "Pay your Self Assessment tax bill". Gov.uk. Retrieved 25 November 2021.
  24. ↑ "Pay voluntary Class 3 National Insurance". Gov.uk. Retrieved 25 November 2021.
  25. ↑ "Answers About Cashing Checks". Helpwithmybank.gov. Retrieved 2008-11-25.
  26. ↑ "§ 4-401. WHEN BANK MAY CHARGE CUSTOMER's ACCOUNT". Law.cornell.edu. LII / Legal Information Institute. Retrieved 25 November 2021.
  27. ↑ Practical Application of the UCC Archived 2013-12-24 at the Wayback Machine bankersonline.com
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