Jacqdar Consulting

Dishonoured Cheques ?

By : Darrin Edwards

Article Viewed 1787 Times to date


	An article on dishonoured cheques .... what damages you can recover ... and how thats calculated.

Cheques ... How many times have you been paid by Cheque, only to find it bounces, and you have been left to recover the money from the debtor ? The purpose of this article in to explain a couple of simple things that people would not ordinarily be aware about dishonored cheques. A Cheque is a recognized form of payment. It comes in a number of flavours, Personal Cheque, Bank Cheque and Company Cheque. Personal and Company Cheques and really the same thing, except one is drawn on a persons personal account and the other is drawn on a company account. Cheques are very quickly being replaced by electronic transactions; such as EFTPOS, BPAY, Internet Transfers and the like. Cheques are being pushed aside - the value of daily cheque transactions has been cut by more than four-fifths from $25 billion in 1994 to only $5 billion in 2004 () as a direct result of these new abilities to pay. The objective of this article is to set a scenario and demonstrate what amounts you would be entitled to collect (not how to collect it); so for the purpose of this article, we are going to assume, that you are the principal or proprietor of a small business, who trades in collectors cards. Each Card Pack, contains a quantity of cards, and is sold for a price of $150.00. On 23 July 2006 a man comes into the store wanting to buy 2 packs of cards for $300.00. You negotiate the sale, and at the counter, the man provides his visa card, which you process and it is declined. The man says there is money in the account and asks to ring the bank; he then speaks to the bank. The man tells you there is a mix up at the bank with his visa card. The man then tells you he cannot pay for the goods unless you accept a cheque. You think the man seems genuine, accept the cheque and hand over the merchandise. Its too late in the day to bank the cheque, so you bank it the next day. Three days later, you receive a note from your bank that the cheque has been returned with an "Answer Refer to Drawer". You ring your bank and you are informed, that the cheque "bounced" because there was insufficient funds to pay on the cheque and for that pleasure, you have incurred a cost of $9.00. You have, as a result of the dishonored cheque, lost $309.00; ie you dont have the money for the purchase ($300.00) and you have incurred a cost at your bank ($9.00). Now you have to spend time, your time that could have been used in selling some of your goods and running your store, chasing down this man to recover your money. The longer you are unable to collect your funds, the more damage you incurr - particularly if you run an overdraft or credit facility with your bankers. There is a little known act, called the Cheques Act 1986, (formerly known as the Cheques and Payment Orders Act 1986) which governs, amongst other things, the damages recoverable on a cheque which is not honoured on presentation. Section 71 of the Act sets out the liability of the drawer (or indorser) of the cheque. In lay terms, the person who gives the cheque (the drawer or indorser), undertakes to you (as the holder) that you will be paid the sum written on the cheque upon presentation. Therefore, if the cheque is presented, and dishonoured, there has been a breach of that undertaking. An indorser, is a person or entity, who had good title to the proceeds of the cheque if it were presented, but indorses the cheque to another. For example, if I wrote out a cheque to you, you can indorse the cheque (usually on the back) to your brother, by writing the words "Please Pay to Patrick Smith ", dating it and signing it. Your brother, Patrick Smith, can then bank the cheque into his account. If the cheque dishonours, then you and I would be liable for the proceeds of the cheque that were not paid. Section 76 sets out the manner in which damages can be claimed, by reference to Regulation 4 of the Cheques Regulations. The damages are claimed as a "liquidated demand*" meaning that they are not the subject of further calculation and do not change. Regulation 4 sets out the calculation of the damages by reference to a rate of interest equal to the latest monthly average yield of 90‑day Bank Accepted Bills published before that day by the Reserve Bank of Australia. Sounds complicated doesn't it, but its not actually complicated to work out. Using the example of our dishonoured cheque above, you have a cheque for $300.00 which has bounced. The date of the cheque is 23 July 2006. So we need to know the latest monthly average yield of 90‑day Bank Accepted Bills published before that day by the Reserve Bank of Australia - we obtain this information from the Reserve Bank of Australia. For the sake of this article, I say the applicable interest rate is 6.10% (from 24 July 2006). So given the information that we now have, the amount of the damages would be claimed as follows:





















	Value of Cheque :	$300.00
	Damages :	$18.30	($300 x 6.10%)
	Dishonour Fee :	$9.00
	Total :	$327.30
	Another Example :
	Value of Cheque :	$3,000.00
	Damages :	$180.30	($300 x 6.10%)
	Dishonour Fee :	$9.00
	Total :	$3,189.30
	Total :	$3,189.30

So as you can see you can claim a little more than just the sum on the cheque. There is one further claim you can make if you decide to pursue the matter through the courts, and that is interest under the Supreme Court Act. That interest is currently assed at 9% per annum; so using our example, interest would be payable from the date of the date of the dishonour through to the date the proceedings were issued. When you take cheques from a person on behalf of a company, and that cheque dishonours, there is an argument that the person who signed the cheque is also liable to you for the amount of the dishonoured cheque and damages on the basis that there is an implied warranty they have authority to sign the cheque and that there was sufficient money in the account at the time the cheque was written to ensure that it would honour on presentation. However, in the absence of an agreement, such as the one identified below, it is subject to argument and you may not always succeed.
What do you charge to recover a bounced cheque ? I charge a percentage of the debt recovered; usually around 20% plus any disbursements that I incurr (such as court fees and solicitors costs). Can I recover other costs - such as your costs or legal costs ?
My costs can only be recoverable if there is an agreement that the debtor will pay my costs - in the absence of that agreement, it is doubtful that my costs can be recovered. Using a solicitor on my panel, you will recover the majority if not all of the legal costs incurred. How can I ensure that I recover all of my damages and costs ?
This is not an unusual question is is answered relatively simply. To ensure that you can recover all damages (including costs), you must have an agreement from the debtor to pay the same in the event there is a dishonoured cheque. An example form of agreement is contained below:
"I, the signatory on the face of this cheque, do hereby warrant that there are sufficient funds in the account on which the cheque is drawn to enable the bank to pay the cheque on presentation. In the event that the cheque does not honour on its first presentation, I in my personal capacity, and on behalf of the drawer of the cheque, irrevocably undertake to pay the sum of the cheque due together with any actual charges incurred by the payee in recovering the cheque, inclusive of but not limited to bank charges, debt recovery charges and legal costs on an indemnity basis." Signed: ........................................................ Date : ......................................
The above form of agreement, would be placed on the back of the cheque- not on an individual piece of paper as it contains references to the parties, which would not otherwise be known. Notwithstanding my confidence in the agreememnt referred to above, and the advice I give in this article, you should always obtain direct advice on what you propose to do, from either a solicitor or from a licensed commercial agent.
At Jacqdar we can correctly assess the amount that is owed to you on a dishonoured cheque and collect it. We can also arrange to issue proceedings to issue through our a member of our panel of solicitors cost effectively, and be served properly (and lawfully) upon the debtor by one of our process servers. We can also purchase dishonoured cheques - each cheque is assessed independantly. For an idea how this happens refers to our Assignments Section. Please Contact us for further information or to discuss your matter confidentially.

Are you interested in having an article published about something quite specific to do with debt recovery or an associated matter ? Do you have a debt you want collected ?