To enjoy the protection of a "not transferable" cheque, you will have to be careful to mark your intentions clearly on the cheque once new laws take effect.
The Parliamentary Portfolio Committee on Finance this week approved various amendments to the Bills of Exchange Act.
One important amendment that will affect consumers is that "not transferable" cheques will in future have to be made out in a particular way to enjoy the full protection of the law. At present, several methods are acceptable.
A cheque is a negotiable instrument which means that it can be transferred to other people. A cheque given in payment by person A to person B can be passed on to person C. All person B has to do is sign the cheque over to person C.
Marking a cheque "not transferable" is safer for you, because it ensures that the person you name as the payee is the only one who may be paid. If your cheque is lost or stolen, the holder of the cheque cannot claim payment.
A "not transferable" cheque can only be paid into an account and cannot be cashed over the counter at a bank. Banks have to take greater care with these cheques because they must ensure that nobody other than the payee receives payment. For this reason it is necessary to use the payee's full and correct name.
The Bill stipulates how you should mark a cheque as "not transferable" and prohibits cancellation of a "not transferable" marking.
Making a cheque 'not transferable'
Once the Bill becomes law, this is what you will need to do:
* To be absolutely safe, you should write the words "not transferable" or "non-transferable" boldly across the face of the cheque. Don't hide the words in a corner. The bank will be regarded as negligent if it pays out a cheque marked in this manner to anyone other than the payee;
* The words "not transferable" or "non-transferable" do not have to be written between two parallel lines, but if they are, your cheque will still be regarded as a non-transferable cheque;
* You can use the word "only" after the payee's name to show that you intend a cheque to be "not transferable", but without the words "not transferable" or "non transferable", the bank cannot be held liable if it pays out the cheque to somebody other than the payee you named. If you use the word "only" without the words "not transferable", the bank cannot be held liable but you still enjoy some protection. For example, if you make out a cheque to "J Jones only" and it falls into the hands of a third person who sues you for payment, you can rightfully claim that you have no obligation to that person.
Lost cheques
The Bill allows banks to make use of electronic imaging of cheques to prevent the loss of cheques in the banking system.
Kevin Daly, general manager at the Banking Council, says moving paper cheques is costly and paper cheques can be lost or intercepted.
When you receive a cheque as payment and deposit it into your account, by law your bank has to present that cheque to the bank of the drawer (the person or organisation who made out the cheque). The drawer's bank must check the cheque and verify the signature.
Daly assured the parliamentary finance committee that electronic imaging of cheques will not make banks any less liable.
Personal liability
Under existing legislation, you are personally responsible if you sign the cheque of a company or organisation, without writing the words "pp" or "on behalf of" and the company or organisation's name. Without these words, the company's creditors can call on you to pay the cheque if the company goes bust.
The new Bill states that as long as the name of the company or organisation on behalf of which you are signing appears on the cheque, it is assumed that you do not wish to accept personal liability. The name of the company can be pre-printed or hand-written on the cheque.
Customer duty
A third change to current practice that has been accepted by the parliamentary committee, is an amendment which places a duty of care on account-holders.
The duty of care will apply to more "sophisticated" account-holders such as companies, government departments and close corporations but not to individuals.
If such organisations are negligent by, for example, not keeping cheque books locked up, and a cheque is cashed fraudulently, the bank will not take any responsibility for the loss.
Daly says banks accept responsibility for the loss in circumstances in which they could have detected a forgery, and where a third party commits the forgery and the drawer has not been negligent. But if the account-holder facilitates the fraud through negligence, the loss should be carried by that person.
The Consumer Institute of South Africa was involved in the drafting of the amendments. It says the standardisation of markings and a reduction in cheque fraud will benefit consumers.
Di Terblanche, chief executive of the institute, says the Consumer Institute's support is conditional on the banking industry agreeing to fund, implement, monitor and evaluate a comprehensive consumer education campaign to co-incide with the promulgation of the new law.