The rise of electronic banking has seen the demise of the use of cheques and currently cheques are a very small proportion of non-cash transactions in Australia.
In Australia, the use of cheques is governed by both the Cheques Act 1986 (Cth) and common law. A cheque is an unconditional order by the customer to the bank to pay a third party. Generally cheques pass through a clearing house, although they can be paid on demand at the customer’s bank.
The bank is contractually bound to pay the money, assuming that certain pre-conditions are met, including:
The customer must ensure a cheque is unambiguous, and if the cheque can easily be altered to increase its value, the bank may debit the account and the loss falls onto the customer.
To an extent, cheques can be protected by crossing with two parallel lines and the words ‘not negotiable’. If a cheque is stolen, crossing the cheque will stop it from being presented at a bank and being immediately exchanged for cash. Instead, a crossed cheque must go through a clearing house to be paid to the person to whom it was written out. Further provisions regarding the crossing of cheques can be found in Part III, Division 3 of the Act.
Cheques can be countermanded (stopped) [s 90], and go stale if not presented after 15 months [ss 3 and 89].
Cheques present an opportunity for forgery of the signature of the customer. At common law the bank bears the responsibility for a forged cheque, unless the account holder has been careless or has failed to advise the bank as soon as becoming aware of the forgery.
Bank cheques are cheques drawn on a bank by itself. It is very unusual for a bank to dishonour its own cheque, but there may be reasons such as forgery or it has been reported as lost or stolen. A person can ask for a bank cheque to be stopped as long as it has not been presented for payment.