Lloyd's Maritime and Commercial Law Quarterly
THE LEGAL IMPLICATIONS OF CHEQUE TRUNCATION
By Johanna Vroegop*
One of the biggest problems which has faced banks in the last 20 years is how to cope with the rapid increase in the number of cheques being written. The number handled by the clearing systems in England doubled between 1972 and 1984, from 1,381 million to 2,752 million, with the annual growth rate for the years 1980–1984 being 3.8%.1 It has also been estimated (in 1987) that a further 200 million cheques per annum are cleared by the banks in Scotland and Northern Ireland.2 On a population basis, Australians and New Zealanders are even more prolific cheque writers. The New Zealand central clearing system processed 428 million cheques in 19873 and it has been estimated that 900 million cheques are written in Australia each year.4 It has only been possible for banks to cope with this volume of processing by extensive automation of the clearing system, which has evolved in a similar manner in many countries.5 It relies largely on Magnetic Ink Character Recognition (MICR), which can be read by machine, enabling sorting of cheques and deposit-slips and ledger-posting to be done by computers. Cheques and deposit slips are both pre-printed with the bank and branch number, the account number and the cheque number; and, when a cheque is deposited for collection, the account number on the deposit slip and the amount of the cheque are also added in machine readable form. This enables cheques to be processed automatically at a central clearing house where the information thus recorded is used by the computer to alter the accounts of the payee and the drawer. This process will also result in a net debit or credit balance for the banks involved in the clearing, which is generally settled at the end of each day on the assumption that all the cheques processed that day will be honoured. After this accounting procedure has been completed, each cheque is taken to the branch on which it is drawn in order to give the bank an opportunity to decide whether to honour it or not. If a cheque is dishonoured, the accounts are changed and an adjustment made to the inter-bank settlement. The legal effect of the various steps in the clearing process described has been before
* Dept. of Commercial Law, School of Commerce and Economics, University of Auckland.
1. Frazer, Plastic & Electronic Money (1985), (hereafter “Frazer”), 259.
2. Kirkman, Electronic Funds Transfer Systems (1987), 17.
3. Databank Systems Ltd. pamphlet (1987).
4. Tyree, Australian Law of Cheques and Payments Orders (1988) (hereafter “Tyree”), para. 1.1.
5. For the English system, see Barclays Bank Plc v. Bank of England [1985] 1 All E.R. 385. For the Australian one, see Tyree, paras. 1.22–1.30. For the New Zealand one, see H.H. Dimond (Rotorua 1966) Ltd. v. Australia and New Zealand Banking Group Ltd. [1979] 2 N.Z.L.R. 739. For the Canadian, see Capital Associates Ltd. v. Royal Bank of Canada (1970) 15 D.L.R. 3d 234. For the American, see West Side Bank v. Marine National Exchange Bank (1968) 155 N.W. 2d 587. For the Irish, see Royal Bank of Ireland v. O’Rourke [1962] I.R. 159. For the South African and German, see Oelofse, “The Moment of Payment of a Cheque Cleared Through an Automated Clearing Bureau” (1986) 1 J.I.B.L. 4.
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