Services / Civil and commercial litigation
A dishonoured cheque: the year you have to sue
Cheques run on a far shorter clock than ordinary debts, and it is a clock the holder tends not to notice, because the time is spent waiting for the other side to find the money and issue a fresh cheque.
The one-year period
Section 1002 of the Civil and Commercial Code provides that where the holder of a bill sues an endorser or the drawer, no action may be brought after one year from the date entered on a protest made in due time, or from the maturity of the bill where it is stipulated that no protest is required. For a cheque the bank has refused, the starting point is therefore tied to the date on the documents, not to the day the creditor happens to remember.
Recourse between endorsers
Section 1003 is shorter still: where endorsers seek recourse among themselves or against the drawer, no action may be brought after six months from the day the endorser took up the bill and paid, or from the day that endorser was itself sued. Someone who has paid on another's behalf therefore has very little time to seek recourse.
The cheque and the underlying debt are separate
A cheque issued to settle an existing contractual debt does not automatically extinguish that debt. When the cheque is dishonoured the creditor may therefore have more than one route: sue on the cheque, which is easier to prove but runs on the short clock, or sue on the underlying debt, which may allow longer but requires the whole history to be established. The choice should be made on both the timing and the evidence available.
The documents that must be kept
The cheque itself is the most important document and must be kept; do not hand it back to the drawer even if asked. Next is the bank's return advice, which states the reason for refusal and the date that the period runs from, and then whatever shows the underlying debt and what the cheque was issued for.
PREPARE
What to bring
- The original cheque
- The bank's return advice, with its date
- Whatever evidences the underlying debt
- Records of any demand after the cheque bounced
- Earlier or replacement cheques, if any
QUESTIONS
Questions this raises
The drawer asked for the cheque back and promised to transfer instead. Should I?
The cheque is the principal evidence for a claim on it. Handing it back before being paid puts you at an immediate disadvantage if the arrangement falls through. If terms are being renegotiated, put them in writing and keep the cheque until payment has actually arrived.
The cheque was post-dated. Which date does the clock run from?
Section 1002 ties the starting point to the date on a protest made in due time, or to the maturity of the bill, not to the day the cheque was written or handed over. For a post-dated cheque, the date on its face has to be read together with the date the bank refused payment.
LAW
The legislation
- Civil and Commercial Code, sections 1002 and 1003
ENQUIRIES
