Cheques in the business context
A cheque is a bill of exchange drawn on a banker, payable on demand. Crossings control how it is paid, and banks must honour or refuse it correctly.
What a cheque is
A cheque is a bill of exchange drawn on a banker and payable on demand. The drawer is the bank's customer, the drawee is the bank, and the payee is the person to be paid. Most rules on bills apply to cheques, with special rules on crossing and on the banker's duties. A bank that wrongly dishonours a properly drawn cheque when funds are available may be liable to its customer for damage to his credit. In Sri Lanka, cheques are cleared through LankaClear, which clears them electronically from scanned images.
Cheque and bill of exchange compared
| Point | Cheque | Bill of exchange |
|---|---|---|
| Drawee | Always a bank | Any person, including a bank |
| When payable | Always on demand | On demand or at a future time |
| Acceptance | Not needed | Usually obtained for a bill payable later |
| Crossing | Can be crossed | Not crossed |
| Stopping payment | The drawer can countermand (stop) payment | Once accepted, the acceptor is bound to pay |
| Late presentment | Drawer discharged only to the extent of actual loss | Drawer and endorsers may be discharged |
Crossings
| Type | How it looks | Effect |
|---|---|---|
| Open cheque | No crossing | Can be cashed at the bank counter |
| General crossing | Two parallel lines across the face, with or without '& Co.' | Paid only to a bank, so the money goes into a bank account |
| Special crossing | The name of a bank written across the face | Paid only to that bank |
| 'Not negotiable' | These words added to a crossing | Still transferable, but the transferee gets no better title than the transferor |
| 'Account payee only' | These words added to a crossing | Instructs the collecting bank to credit only the payee's account; widely used in Sri Lanka |
When a bank may or must refuse to pay
- Insufficient funds and no agreed overdraft: often returned marked 'refer to drawer'.
- The drawer's signature does not match the bank's specimen.
- The amount in words and in figures differ.
- The cheque is stale: presented too long after its date, under the bank's standard rule.
- A post-dated cheque is presented before its date.
- The customer has countermanded (stopped) payment.
- The bank has notice of the customer's death, insanity or insolvency.
- A court order freezes the account.
- A material alteration is not confirmed by the drawer's signature.
Banker and customer
Most Sri Lankan companies pay suppliers by crossed 'account payee only' cheques or bank transfers, so the money can reach only the supplier's own account. A customer's cheque returned 'refer to drawer' usually means there were not enough funds, and the supplier can take legal action on the cheque.
Short answer: “What is a crossed cheque?” A cheque with two parallel lines across its face (with or without words), which can be paid only through a bank, not over the counter.
Structured question: “Distinguish between a cheque and a bill of exchange.” Drawee always a bank vs any person; on demand vs demand or future; no acceptance vs acceptance; can be crossed vs not; countermand; effect of late presentment.
Essay: “Explain the types of crossing of cheques and the circumstances in which a banker may refuse to pay a cheque.” Define a cheque; explain open, general, special, 'not negotiable' and 'account payee' crossings with effects; then list the grounds for refusal; close on the banker's duty and wrongful dishonour.
Crossings add safety: open (uncrossed) → general (paid only into a bank account) → special (paid only through the named bank). Not negotiable and account payee can be added to either crossing for extra protection, which makes the cheque safer to send by post.