The practice of writing 'pay cash' cheques is increasing day by day. Occasionally, such cheques are also made payable 'to order', and even crossed 'account payee'. This, at times, creates unmanageable chaos between the collecting and the paying bankers.
The entire brunt of this malpractice is borne by the branches; senior executives at controlling offices remaining indifferent. This situation demands some corrective action before anything untoward happens.
As defined in Section 6 of the Negotiable Instruments Act, 1881, a cheque is a bill of exchange, which, in turn, as defined in Section 5 ibid, is a directive to pay a certain sum of money "to or to the order of a certain person or to the bearer". Hence, an instrument containing a directive to pay 'cash' a certain sum of money cannot be a cheque, since 'cash' is not a certain person.
Legal definition and its implications in the wake of case law shall be discussed at a later stage. Let us first look into the simple meanings of the expression "pay cash or bearer". Anybody, who has even the basic knowledge of English language, shall come out with only two possible interpretations of this sentence, ie either 'cash' is a person like 'bearer', having specific identity, or 'bearer' is a commodity like 'cash'. Obviously, none of the two carries any sense.
The thing does not end here. The expression quoted above yet does not make a complete sentence. The complete sentence that is written on a cheque leaves reads: "pay cash or bearer rupees so many thousand only". Does this construction convey any meaningful message? Obviously, NOT. Unfortunately, even the highly qualified people have failed to take note of this vague and distorted message. They have, of their own, presumed its meaning analogous to "pay to the bearer rupees so many thousand in cash".
Yet another underlying misconception is that cash can be paid on the counter of the bank only if the cheque is written to read 'pay cash'. The editor-in-charge of a national daily was also found suffering from this misconception; what to tell of a common man with extremely poor academic-cum-technical background? In fact, any open cheque, ie a cheque which is not crossed, can be paid in cash on the counter of the drawee bank. If it is a bearer cheque it can be paid to anybody who presents it.
Alternatively, if it is an order cheque, the named payee or the endorsee shall have to establish his identity before payment is made to him in cash at the counter. To pay in cash or otherwise is never a part of the directive given on the cheque.
Before further analysing this issue, it seems desirable to vouch for the status of such cheques in the light of the expert's opinion and in the wake of the case law on this premise, which is by no means scanty.
In the words of Sir John Paget, a leading and the most outstanding research scholar on banking, "The normal cheque is one in which there is a drawer, a drawee banker, and a payee or no payee but bearer".
In North and South Insurance Corporation Limited, v. the National Provincial Bank Ltd (1936) 1, K.B. 328, while addressing the question whether or not cheques drawn payable to impersonal payees, such as 'house-keeping or order', 'wages or order', or, 'cash or order', should be required to be endorsed, Branson, J. held that having regard to Ss. 3 and 73 of the English Bills of Exchange Act, 1882, such instruments were not cheques at all, but mere mandates to pay to the bearers thereof.
As regards the words 'or order', it was held that an impersonal payee, such as, 'cash', for example, could not endorse, since it was not a specified person. The words 'or order', must, therefore, be neglected, and the document be treated as a "good direction to pay to the bearer".
The reason by which His Lordship arrived at the aforesaid conclusion was that a cheque, as defined in S.73 of the English Bills of Exchange Act, 1882, was a bill of exchange drawn on a banker payable on demand, and that a bill of exchange as defined by S.3 of the same Act was a directive to pay to or to the order of a specified person or to bearer. A document containing a directive to pay 'cash' or 'order' was not payable to a specified person. Hence, not being a bill of exchange, it was not a cheque within the meanings of the term.
The position in Pakistan is analogous to that in the UK. Under Pakistani law (Negotiable Instruments Act, 1881 as adapted in Pakistan), the payee must be a 'certain' person, as against 'specified' person under the English Law, and a cheque must indicate that certain person to whom money is directed to be paid. 'Cash' not being a certain person, instruments payable to 'cash' do not meet the requirements of law.
This deprives all the parties to a cheque of the privileges and protection associated with negotiation. Thus, for example, its holder cannot have a better title than the title of the person from whom he derived his title, nor can he pass on to the endorsee a better title than he himself has. It is a matter of paramount severity both for the collecting and the paying bankers, and also for the payees and the endorsees. Unfortunately, however, bankers are not taking it quite seriously.
No doubt, the word "certain" is very wide in its import, and a person will be sufficiently certain if he cannot be mistaken for another person of the same name, though in the cheque he is misnamed. Yet, fictitious persons or impersonal expressions don't fall within the purview of this term. This needs further elaboration.
Persons in the eyes of law are not necessarily human beings. The legal person may be a body corporate constituted by law with power to contract, such as a joint stock company, which is a legal entity, which has its own common seal, and which can sue and be sued in its own name. Other examples are local bodies, trading enterprises, clubs, and societies, and other various types of trading and non-trading organisations.
Moreover, the term 'certain person' does not necessarily mean that the personal name of the payee should be given on the cheque. He may be designated as the holder of an office. Thus, cheques payable to the Director, Finance, University of Karachi, Secretary, Karachi Gymkhana, President, Karachi Chamber of Commerce and Industry, are regarded as payable to 'certain person'. But, an instrument payable to 'City Nazim' may not be treated as payable to a 'certain' person, unless the name of the city is specified.
Persons addressed by titles, or by family or pen names etc, if capable of maintaining their identity by such titles etc are also tantamount to 'certain' persons. For example, cheques payable to Shair-e-Mashriq, or to Quaid-e-Azam, or to Jinnah, or to Josh Maleehabadi will be construed as payable to 'certain' persons, because there cannot be two Quaid-e-Azam, nor can one impersonate as Shair-e-Mashriq. However, banks will like to obtain letters of indemnity while collecting such cheques for the accounts of celebrities maintained in their personal names.
Notwithstanding such a wide scope of the term 'certain person', the fictitious persons or imaginary characters, such as, Shaikh Chilly, Omar Ayyar, Sherlock Holmes, Tarzan, Harry Potter, and so on, or impersonal names, as, cash, wages, imprest etc do not fall within the fold of 'certain persons'. The case law is crystal clear on this premise.
The judgement in North and South Insurance Corporation Ltd v. The National Provincial Bank Limited, (1936) has categorically excluded such cheques from the category of bills of exchange. This tends to deprive bankers of the statutory protection available to them in respect of negotiable instruments. Consequently, the most preferable course of action for the paying bankers is to return such cheques with the reason 'irregularly drawn'.
In case payment is desired to be made, it is advisable to obtain a duly stamped receipt, even if the presentation is made by the drawer of the cheque himself.
There is yet another case, namely, Cole v. Milsome (1951), 1 All.ER 311 wherein it has been laid down in unequivocal terms that such documents cannot be treated as cheques, as they do not satisfy the legal requirements of a cheque.
Notwithstanding such clear-cut rulings given at the appropriate levels of judiciary, and regardless of the relevant law of the land, cheques are being freely made payable to 'cash', and are being collected and paid by banks as a routine.
Although the case law is quite clear as regards payment of cheques payable 'to cash or order', so that the words 'or order' are required to be ignored, and the instrument be treated as payable to bearer, yet instances are not uncommon when there is sharp difference of opinion between the collecting and paying bankers on this count.
Recently, a query was referred to this writer. The cheque was drawn payable 'to cash or order', and was crossed 'Account Payee'. The paying bank was insisting to have a discharge by the collecting bank, while the latter was not inclined to give any on the plea that there was no account in its books by that description to justify a discharge.
The collecting banker owes an answer to the question that if he did not have any such account then for whom he was collecting the cheque, and, by doing that, will he be eligible for the statutory protection available to the collecting bank under S.131 of the Negotiable Instruments Act?
In this situation it becomes obligatory on the part of the practising bankers to help their customers write their cheques within the ambit of law, without frustrating their interest in the current practice.
THERE ARE THREE POSSIBLE SOLUTIONS TO THIS DILEMMA: (i) to straightaway refuse handling of such instruments on the plea 'irregularly drawn'; or, (ii) to treat all such instruments as bearer instruments, ignoring any other indication; or, finally (iii) to alter the notation of the cheque leaves as per the specimen provided hereunder in Fig.2.
Obviously, in the wake of the severe competition, bankers cannot afford refusing handling of such cheques. Moreover, it is already too late. Things have gone too far. At this stage, bankers cannot resist this mode of writing cheques without annoying their clients.
A consensus between the collecting and the paying bankers to treat such 'order' cheques and cheques with 'account payee' crossing as bearer is almost impracticable to achieve. The reason is the poor knowledge of banking laws at grassroot level and lack of guidance from the controlling offices. Thus, the only practicable option left is to alter the notation of cheque leaves as hereinafter prescribed.
IT WOULD BE INTERESTING TO NOTE THAT AMERICAN AND EUROPEAN BANKS HAVE TAKEN CARE OF THIS HAZARD BY INTRODUCING CHEQUE LEAVES THAT READ AS UNDER:
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Pay to the order of $
Dollars -
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The format of cheque leaves currently in use. In contrast, there which presents the proposed version.
THE EXISTING FORMAT OF A CHEQUE LEAVES:
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Pay or bearer
Rupee Rs
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THE PROPOSEDE FORMAT OF A CHEQUE LEAVES:
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Pay Rupee -
Rs
To or bearer
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A BIRD'S EYE VIEW OF THE TWO FORMATS WOULD REVEAL THE FOLLOWING FACTS:
-- Contents of the two formats are identical, except that in the proposed format order of notation is changed, and the word 'to' is added to the contents.
-- The changed version fully meets the requirements of law.
-- Clients will follow the direction automatically without noticing any change. For example, after the words 'Rupees', they shall be constrained to write the amount, and after the word 'to', the name of the payee. They will never reconcile with the expression, such as, "pay rupees so many to cash".
-- After the existing stock of cheque books is exhausted, new cheque books may be printed according to the proposed format, and supplied to the branches without any formal notification.
(The author is a retired Director-General of ABL.)
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