THE CHEQUE AND ITS VARIOUS CROSSINGS
A cheque is often described as a bill of exchange, drawn by a customer
on his banker, for a sum certain in money, payable on demand. In these
days, when the mere babe produces his cheque-book on the slightest
provocation, it seems unnecessary to describe how a cheque should
be drawn; though it may just be added that it must bear a stamp of
one penny, and that the stamp may be either impressed or adhesive.
A customer, therefore, can draw a cheque on his banker upon a sheet
of notepaper; but he would be well advised, except under exceptional
circumstances, to use the forms supplied to him.
Order or Bearer.
A cheque is payable either to “order” or to “bearer”; and, if the
latter word be used, then it does not require indorsing, while should
neither word be upon the document, the cheque is held to be an “order”
one. Either the person to whom it is payable or the drawer may change a
cheque from bearer to order; and this he would do by running his pen
through the former word; but the drawer alone can alter an order cheque
by writing the word “bearer” in full and initialling the alteration. If
the cheque be signed by more than one drawer, then all should add their
initials to any correction it may be desirable to make.
Date of a Cheque.
Any person who receives an undated cheque is entitled to fill in what
he believes to be the correct date, and need not trouble to return
it to the drawer for that purpose. He cannot, of course, make any
_alteration_ in the date, but should, in the event of a mistake on the
drawer’s part, return it to him for correction, when he (the drawer)
would make the desired alteration and write his initials against it.
It is, perhaps, as well to remember that a certain class of debtors,
who may be described as either “hard up” or “shady,” have their little
peculiarities; and one of them is to post-date their cheques when they
know that there is not sufficient money at the bank to meet them.
Their object, of course, is to gain time; and should a payee, upon
receiving such a cheque, have cause to think that he is dealing with
one of these gentlemen, he might pay in the cheque to his own banker
for collection, and write pretty plainly to the drawer, requesting him
to call at his banker’s and put the cheque in order. Though a cheque be
either post-dated, that is to say, dated so that it falls due after the
day upon which it is drawn, or dated on a Sunday, the document is not
invalidated thereby.
A Stale or Out-of-Date Cheque.
Most bankers would probably decline to pay a cheque which had been
outstanding more than six months. The drawer, however, does not cease
to be liable upon the instrument until six years after the date
thereupon; though he may claim damages against the payee if he can
prove that he has suffered loss through his delay.
Crossed Cheques.
Though this practice originated in the United Kingdom, the French banks
have now adopted the idea, which is as simple as it is undoubtedly
useful and protective to the customer. A cheque may be crossed either
generally or specially--specially, that is to say, to some bank or to
the account of an individual who keeps an account with a banker.
If a customer draw two parallel lines across the face of a cheque,
thus, / /, he has instructed his banker _not_ to give cash in exchange
for it to the payee across his counter. It follows that a cheque so
marked must be passed through a banking account. The words “& Co.”
are sometimes written between the lines; but this addition is almost
meaningless, the simple crossing being all that is required.
A person who draws two parallel lines across his cheque, gives the
following instructions to his banker: “Do not pay cash over your
counter in exchange for this cheque, which must reach you through a
banker, and be paid to him alone.”
When, therefore, you wish a person to whom your cheque is made payable
to go to your banker’s and draw the money, you will be careful not to
cross it. Practice, somehow, always seems at war with theory, and it
is not by any means an unusual occurrence for a lady, after having
deliberately told her banker not to pay cash for her cheque to the
presenter, to indignantly inquire why he did not disobey her behest
and do so. A prudent teller seldom descends to either argument or
explanation, but calmly accepts such reproof as one of the amenities of
his calling, and resigns himself philosophically to the inevitable.
Not Negotiable Cheques.
This description is somewhat misleading, for a cheque crossed /not
negotiable/ is in reality negotiable, though not so fully as is the one
that has been discussed in the foregoing division. The distinction,
however, is not difficult to grasp. Take a cheque with two parallel
lines across the face simply. Now, if such a document be lost, and
find its way into dishonest hands, a third party, who gives value in
exchange for it, provided he have no guilty knowledge, has a good title
against all the world, and can compel the drawer to pay him the sum for
which it is made out.
For instance, A draws a cheque for £20 payable to B, and crosses it /&
Co/. B, the payee, after having written his name on the back of the
cheque, loses it. C picks it up and passes it on to D, who gives him
cash or goods in exchange for it. As B has indorsed the cheque he will
have to bear the loss, even though he has got A, the drawer, to stop
payment of it at his banker’s.
But had the words “not negotiable” been added, D could not have
enforced his claim, although he was a _bonâ-fide_ holder for value. A
“not negotiable” cheque warns any holder for value thus:--
“You must, if you part with either cash or goods in exchange for this
document, be prepared to take all risks upon your own shoulders. The
crossing hereon gives you due notice that you must act upon your own
responsibility, and the law, therefore, affords you no protection.”
A business man cannot be too careful in dealing with a cheque thus
marked; and unless he be well acquainted with the holder, he should
decline to part with either cash or goods in exchange for it. One
should never, even if one know that the drawer is a man of means, and
that the signature upon the cheque is genuine, give value for it to a
stranger, as there is always the danger of one’s having to make good
the loss of any prior holder, who may have been defrauded, whilst if
the payee cannot enforce his claim against the drawer, then a holder
for value cannot.
A “not negotiable” cheque, in short, is analogous to an over-due bill.
Any person who may deal with a a bill after its maturity does so upon
the understanding, or, better, supposition, that he is acquainted with
any flaw there may be in the title. He may not know of any; but the law
holds that he does. It is precisely the same with a “not negotiable”
cheque.
Cheques, which are crossed in the manner already described, are said to
be crossed generally.
Cheques Crossed Specially.
A cheque is said to be crossed specially when one writes across the
face of it, say:--
“A/C John Smith,
Provident Bank of London.”
One may name, in the crossing, any particular bank, and the banker
upon whom the cheque is drawn will take care that it comes through the
channel indicated thereupon. In the above illustration, for instance,
your banker will see that the cheque has the name of the “Provident
Bank of London” stamped upon it; and should he not find it there, then
he would decline to pay the document.
Either the payee or the holder of an uncrossed cheque may cross it
generally or specially; and if it be already crossed generally, then
either can cross it specially, or add the words “not negotiable.”
How to Cancel a Crossing.
The drawer alone can do this by writing upon the cheque the words “pay
cash,” and signing his name beneath them in full.
How to Indorse or Back a Cheque.
For all practical purposes one cannot do better than sign one’s name
upon the back of a cheque exactly as the drawer has written it upon
the face, with, of course, the omission of any courtesy title, such as
Miss, Mr. or Esquire, which are merely there as a mark of civilization
and progress. If one’s name be spelt incorrectly, then one should back
the cheque just as it is drawn, and write one’s correct name underneath
the misspelt signature. Further, do not bully the cashier if he make
this request of you, for to do so is the sign of a weak mind.
A cheque payable to John Smith, Esq., or to Mr. John Smith, should be
indorsed:--
“John Smith.”
Doctor John Smith may sign “J. Smith, M.D.”; and Colonel John Smith,
“J. Smith, Colonel.” These embellishments, however, are as unnecessary
as a flourish would be on the final _h_ of Smith, and, in a busy age,
the sarcastic person, like the law, regards them as superfluous. A Miss
Mary Smith, who has married a Mr. John Brown, would indorse a cheque
made payable to her in her maiden name:--
“Mary Brown, _née_ Smith.”
If the cheque be made out to Mrs. John Brown, then she signs:--
“Mary Brown, wife of John Brown,”
or
“Mary Brown (Mrs. John Brown)” in brackets.
Certain ladies of a masterful temperament appear to entertain a
strong objection to signing themselves “the wife of” such-and-such an
individual, as though the designation smacks of an inferiority of
which they are not conscious; and such susceptibilities may at least be
soothed by placing the opprobrious term within brackets.
A cheque payable to Mrs. Brown or bearer would not, of course, require
her name upon the back. But if it were to order, then she would indorse
it either M. Brown or Mary Brown. When the drawer omits one’s initials,
one should write one’s usual signature upon the back of the cheque;
and though it is not necessary to sign christian names in full, even
when they are so written upon the document, the capital letters must,
of course, agree with those upon the face. A cheque drawn in favour of
Messrs. Robinson is obviously payable to two or more persons of that
name, so it may be indorsed: “A. & C. Robinson,” “Robinson & Son,”
“Robinson Brothers,” or “Robinsons.” “Robinson and Nephew” would not,
however, meet the case, for it by no means follows that the nephew
is a Robinson. It is equally as probable that he may be a Smith or a
Jones--or a somebody else. In practice, provided the cheque be for a
small amount, the paying banker is seldom squeamish, but when a large
sum is in question he naturally takes care that he is upon the safe
side, for the good man is very human. Where a cheque is payable to two
or more persons, who are not partners, then all should indorse.
A payee who is unable to write must make his mark or cross (the
trade-mark of the illiterate) in the presence of a witness, who attests
it thus:--
his
George X Brown.
mark
Witness:
Robert White,
55, High Street,
Birmingham.
When the payee (the person to whom a cheque is payable) writes his name
upon the back of an “order” cheque the document is said to be indorsed
in blank, and becomes in effect payable to bearer. He can, however,
make it payable to another person by writing above his signature: “Pay
Thomas Brown or order.” Thomas Brown must then indorse the cheque.
Further, any holder may write this request above the indorser’s
signature, thereby converting an indorsement in blank into a special
indorsement.
A restrictive indorsement gives the indorsee no power to transfer his
rights. Hence a cheque indorsed to “John Smith only” prevents further
negotiation of the instrument. Where a cheque is payable to, say, John
Smith for R. Jones, the payee simply has to write his own name on the
back.
Should the name of a fictitious or non-existing person be inserted as
payee in an order cheque, the document may be treated as payable to
bearer. Cheques drawn to “cash,” “house,” etc., are so treated. It is
usual, however, for the drawer to indorse them, just as he would a
cheque payable to “self or order.”
Any executor or administrator can indorse a cheque made payable to
a deceased person, but all trustees must sign. In practice, a banker
usually guarantees or confirms these indorsements.
Finally it may be added that it is not illegal to indorse a cheque in
pencil, though a banker would probably decline to honour it on the plea
that it becomes fainter as time progresses. Again, too, an indorsement
may be made on the face as well as upon the back of a cheque, but the
customer, unless he be of a peculiarly combative temperament, merely
wishes to know what is usual, and we are all aware of the accepted rule
in this instance.
Agents and “Per Pro” Indorsements.
A signature by procuration indicates that the agent’s power to bind his
principal may be, and probably is, limited. For instance, the agent may
only have authority to indorse cheques and bills, and if he sign as
either drawer or acceptor, he cannot bind his principal. Moreover, as a
procuration signature operates as notice of his limitations, a holder
has no claim upon his principal, as he should have protected himself by
demanding to see the agent’s letter of authority.
A customer, when he wishes another person to draw cheques on his
behalf, gives a letter of authority to his banker, and states therein
exactly what his nominee or agent may do. The authority may only allow
a certain person to sign cheques on his behalf up to, say, £100, and
the banker would, of course, refuse any cheque drawn in excess of
that sum. Most bankers keep printed forms of this description, and the
customer, if he obtain one, can, by crossing out what the agent may
_not_ do, limit his power to any extent he thinks necessary. These
letters need not be stamped, and, unless previously revoked, they
continue in force until the bankruptcy, insanity, or death of the
principal.
We can now see that dealing with an agent is not unattended by certain
risks. The banker always protects himself by ascertaining that an agent
really has authority when he signs the name of a client in the capacity
of either drawer or indorser, but as he (the _paying_ banker) is not
liable upon either a forged or an unauthorized indorsement, _per pro_
indorsements are universally accepted by the banks in the ordinary
course of business. They are not, however, legally obliged to pass
them, and a banker may demand to see an agent’s authority or insist
upon having a confirmation of the indorsement.
An agent usually signs:--
“_per pro_ (or _p.p._) John Brown,
Robert Smith.”
It has been held that “_p.p._ Mr. John Brown, Robert Smith,” is a
good discharge, but the foregoing method is the more general. There
have also been decisions in favour of the prefixes “pro” and “for,”
though most bankers refuse to pay cheques so indorsed. Procuration
indorsements are not accepted on dividend-warrants.
A cheque payable to Brown’s Drapery Stores may be indorsed:--
“_p.p._ Brown’s Drapery Stores,
Thomas Brown, Proprietor.”
Again, should Thomas Brown receive a cheque, which, he knows, is
intended for him, though made payable to Thomas Bright, he might sign
upon the back: “_p.p._ T. Bright, Thomas Brown.” He can explain the
reason for this to his own banker, but the paying banker will not
question the indorsement. Cheques which are drawn in favour of an
establishment one owns, or of a commodity one sells, can always be
backed “_per pro_.”
A cheque to the order of a limited or unlimited company is generally
indorsed _per pro_ the company, and the signer should then state the
position he occupies, whether director, secretary, manager or cashier,
as in the following illustration:--
“_p.p._ The Hull Shipping Company, Limited,
Walter Wilson,
Manager.”
It is always advisable to sign for or on behalf of a company, and to
state in what capacity one signs, so as to avoid a personal liability.
An agent who signs under a power of attorney, usually indorses: “Thomas
Brown by his attorney William Smith.” It is as well to remember that a
power of attorney often confines the agent’s power, as in the case of a
letter of authority, within very narrow limits, and that the principal
is only bound by its provisions.
Banker’s Liability on Forged Indorsements.
The paying banker is not liable upon a forged or unauthorized
indorsement, but the collecting banker is in the case of uncrossed
cheques, and, according to a recent decision by the House of Lords,
may be upon crossed ones. If a banker credit his customer’s account
with the amount of a crossed cheque _after_ it has been cleared, he is
protected by Section 82 of the Bills of Exchange Act; but should he
credit his client’s account with the said cheque before he himself has
collected it, then he ceases to be a mere agent, and becomes a holder
for value, and, consequently, liable upon a forged indorsement. As it
is usual, both in London and the provinces, to credit a customer’s
account with cheques on the day that he pays them in, it follows
that an employer, if his agent have indorsed crossed cheques without
authority and placed them to an account in his own name, can recover
their amount from his agent’s banker.
Banker’s Liability where Drawer’s Signature is Forged.
The banker is liable to a customer upon any forged cheque he debits to
his account.
When a Cheque is Legally Paid.
A banker, having passed the cash across his counter, cannot legally
demand it back again, and the presenter may please himself whether or
not, if asked, he will return the money. The banker has no power to
compel him.
Stopping Payment of a Cheque or Bill.
This must be done by the drawer or acceptor, as the case may be, and by
him alone. He should write a note to his banker, giving an exact copy
of the cheque or bill he wishes returned, and the banker will then mark
his ledger and instruct the cashiers to refuse payment of the document,
if presented. Should he pay the instrument in spite of the customer’s
order to the contrary, he will have to make good any loss occasioned by
his negligence.
Lost Cheques.
The payee or the holder who loses a cheque can, of course, give notice
of his loss to the banker upon whom it is drawn, and the banker would
doubtless question any presenter, but he, the payee or holder, must
obtain an order from the drawer instructing his banker to stop payment.
The drawer, though he cannot refuse such a request, may insist upon
receiving security before he issues a fresh cheque. Further, if the
drawer employ the customary means of communication, such as, for
instance, sending his cheque through the post, or should the payee
himself select a particular channel, then any loss falls upon the
latter. A holder for value, however, provided the cheque be not tainted
with forgery, and that it be not crossed “not negotiable,” can compel
payment from the drawer, who must then fall back upon his indemnity
should he have issued a duplicate cheque.
Sending Cheques through the Post.
When remitting cheques to one’s banker for the credit of one’s account
it is advisable to write across the face of each: “A/C Payee, with ----
Bank of London.” In the event of a cheque thus marked getting into
dishonest hands no banker would care to collect it. Where the sender is
the holder, and not the payee, he would, of course, cross the cheque
“A/C John Jones,” etc.
As the paying banker is not liable on a forged indorsement, it is
always desirable to receive an acknowledgment from the payee of a
cheque posted to him. Should not this come to hand in proper time,
then payment of the cheque might be stopped at the bank, and the stop
removed when the receipt arrives. It is, perhaps, as well to remember,
when sending a crossed cheque through the post, that the addition of
the words “not negotiable” lessens the risk of both payee and drawer.
Paid Cheques.
These are the legal property of the drawer; but a banker is entitled to
an acknowledgment from the customer before he surrenders them.
Providing for Cheques Specially.
A customer, whether his account be overdrawn or not, may pay in a
certain sum to his credit, and request his banker to pay a particular
cheque against it. The person who adopts this procedure is invariably
somewhat “hard up”; and having issued cheques which, in the aggregate,
amount to more than the balance at his credit, or which would, if
presented, overdraw his account beyond the agreed sum, he is naturally
nervous lest his banker should return one or two of them. Assuming that
he has some half-dozen cheques in circulation, but is particularly
anxious to pay one to John Smith, who has threatened to sell him up,
for £30, and another for £40 to William James for rent, then he should
pay £70 to his credit, and write across his paying-in slip: “To provide
for my cheques of £30 to John Smith and £40 to W. James specially.” The
banker, if he accept the slip, is bound to hold the money against the
cheques in question.
Present your Cheques at Once.
A business man, in order to give himself every chance, will pay all
cheques to the credit of his banking account upon the day he receives
them from his customers. He has, in the legal sense, until the close of
the first business-day following the day he gets the cheque, when, if
he like, he can post it to his agent, who has the same time-allowance
for presentment, provided the cheque be not drawn upon a bank in his
own town. If he delay longer any loss incurred by the drawer through
non-presentation will fall upon the payee’s shoulders. For instance,
should the bank fail, the payee might be saddled with a bad debt
through his delay.
A customer who has a doubtful cheque in his possession, and who is
anxious to know whether the drawer has funds to meet it, can instruct
his banker to forward the cheque in question direct to the drawer’s
bankers, with the request that they telegraph back whether or not the
cheque is paid. Or he may ask them to wire only in case of non-payment,
and so save himself the expense of a telegram. Some companies, when
they think a customer will stand it, charge 1s. for doing this; but one
should decline to pay more than the price of the telegram, viz., 6d.
Returned and Dishonoured Cheques.
It does not follow that, because a banker returns a cheque, the money
is not there to meet it, as, more often than not, a cheque is sent back
for some irregularity in the indorsement, which can be at once put
right. It is necessary, therefore, before jumping to conclusions, to
carefully examine the words written upon the document. The following
are the usual answers given by bankers, with their abbreviations:
“R/D” (refer to drawer). Such an answer clearly implies that the cheque
has been dishonoured for lack of funds.
“Effects not cleared.” Here the client, assumably, has enough money to
meet the cheque, but the banker has not yet cleared or realized the
documents he has paid in, and the drawer’s credit is so poor that he
will not honour his cheque until this has been done. A cheque thus
marked is usually re-presented, but, obviously, the drawer is weak.
“N/S” (not sufficient). We gather from this that the drawer has some
money standing to his credit, though not enough to meet the cheque.
“Words and figures differ” does not require an explanation, though,
perhaps, it may be remembered that weak drawers have a trick of making
mistakes in order to gain time. “Payment stopped,” “Post-dated,”
“Incomplete,” “Another signature required,” “Indorsement irregular,”
and other answers that might be given, are self-explanatory. Cheques
returned for these reasons naturally do not reflect any discredit upon
the drawers. Of course, a person with an open, charitable mind is free
to make his own deductions.
Occasionally a banker returns a customer’s cheque when he is in funds.
Such a mistake generally occurs through a credit having been posted to
the wrong account, and as often as not the two customers are blessed
with the same surname, though not with an equal amount of this world’s
goods. Brown, for instance, is not an uncommon name, so we will assume
that a credit of poor Brown’s has been posted to rich Brown’s account
by mistake, and that the banker returns the former’s cheque for £50
marked “refer to drawer.” Now poor Mr. Brown has a good case against
his banker, and should at once consult his solicitor, who will see
that he gets compensation for the damage done to his credit. Most
bank-directors, who are modest, retiring gentlemen, prefer to settle
such a case privately, as it is not thought desirable to advertise
the fact that a mistake of this nature, with their perfect system of
book-keeping, is possible.
Drawer too Ill to Sign.
In the above instance the customer makes his mark, which is usually
witnessed by his doctor. Sometimes he authorizes a person to draw
cheques upon his account up to a certain sum, and cancels the authority
upon his recovery.
Backing a Cheque for a Friend.
The man who backs a cheque in order to oblige a friend should remember
that he makes himself responsible for its payment, and that should his
friend have no money to meet it, he, the indorser, will be called upon
to make good the loss. He does not merely vouch for the respectability
of his friend, but he also guarantees that his cheque will be duly
honoured upon presentation, which is quite another matter. One
should, therefore, decline to back a cheque for a stranger upon any
consideration.