Soaring crime rates are making bank customers increasingly aware of the need to write cheques carefully.
A recent column on safeguarding cheques resulted in several readers asking for more details on the legal implications of crossing cheques and marking them "not transferable" and "not negotiable".
The key question is: when can banks escape responsibility for accepting a stolen cheque?
Des Williams, the head of the litigation department at attorneys Werksmans in Johannesburg, says there is a lot of case law on cheques and the liability of the collecting banks those which accept cheques. It often revolves around the question of negligence.
If you want to adopt a belt-and-braces approach, you can cross the cheque twice, writing "not negotiable" and "not transferable" between the lines.
Crossing the cheque and not adding any wording means it can only be deposited into a bank account.
Crossing a cheque and writing "not transferable" means it cannot be transferred to anyone else and must be deposited into the payee's account.
If a "not transferable" crossed cheque is accepted by a bank and paid into an account other than the payee's, then the bank is responsible for any loss suffered by the person who issued the cheque.
But the "not negotiable" crossing is a thorny area. Basically, a "not negotiable" cheque can be transferred.
Williams says that, according to law, the holder of a cheque crossed and endorsed "not negotiable" takes the cheque "subject to equities".
What does that mean? If It might be simpler to use an example, where White makes out a crossed, "not negotiable" cheque to Brown, who then writes on the back "pay Green" and signs it, and gets cash or goods or services in lieu of the cheque from Green. Green in turn takes it to a bank to deposit it in his account.
John Bromley, a partner in the litigation department of Cape Town attorneys Fairbridge Arderne & Lawton, says if a dispute arose about this cheque, for example, White stopped the cheque because he was sold defective goods, then whatever defences were available to White against Brown's claim, based on the cheque, would also be available against Green.
If the same dispute had arisen over a cheque which was not marked "not negotiable", then White would have no defence against Green's claim based on the cheque, although the defence that the goods were defective would be available to White against Brown's claim on the cheque.
As far as the theft of "not negotiable" cheques is concerned, if White made out a cheque to Brown and it somehow fell into the hands of a dishonest Green, Green could merely write his own name on the back of it, sign it as Brown, and deposit it in his own account at the bank. The bank cannot be held to be negligent if it accepts the cheque, because it would have no way of knowing what Brown's signature looks like unless Brown is a customer of the bank.
Bromley says our courts are emphatic that clear and unequivocal words of "non transfer" must be used on a cheque to render it truly not transferable. To avoid any ambiguity, the drawer of a cheque, in addition to adding the words "not transferable" should delete the words "or order"/"or bearer". The words "account payee only" do not restrict transferability of cheques.