Put at its simplest, a cheque is a means of payment that may be drawn only on a bank, that is subject to the formal requirements laid down by law and that qualifies as a negotiable instrument. A person who draws the instrument in order to discharge a debt brings about two consequences by that act: they confer on the bank named in the text the authority to pay the stated sum to whoever presents the instrument; and they give the person holding the instrument the possibility of collecting that amount.
In practice, however, instruments are frequently drawn where there are no funds at all in the cheque account or where the balance is insufficient to cover the sum written on the instrument. This state of affairs, which damages the functioning of commercial life, sets in motion a process giving rise both to a collection problem and to criminal liability.
Presentment of the instrument means that the person holding the cheque submits — that is, produces — it to the bank named in the text, requesting payment to themselves of the sum written on it. The creditor obtains their claim when, the date appearing on the instrument having arrived, they apply to the bank within the statutory period and collect the amount from the cheque account. Where there are no funds in the account, the drawee bank must carry out the “insufficient funds” endorsement. So that this procedure may be better understood, we think it useful first to explain how collection takes place in the ordinary course.
Collecting the Amount of a Cheque in the Ordinary Course
Collection of the amount depends above all on presentment of the instrument. As a rule, the claim — that is, the demand for payment of the amount — cannot be asserted without the physical instrument being produced. The creditor must submit the instrument to the bank with a demand for payment.
Presentment must be made within the periods laid down by law. These periods, which we set out in detail below, begin to run from the day following the date of issue written on the instrument. In addition, the cheque account with the bank named on the instrument must hold funds sufficient to cover the amount. Otherwise the “insufficient funds” endorsement will be resorted to and criminal sanctions will arise.
Another point that is decisive for collection is the validity of the instrument. For a detailed account of this subject, our note titled Mandatory Elements Required in a Cheque may be consulted.
Periods Prescribed for Presentment to the Bank
The period for presentment indicates the window within which the person holding the instrument may apply to the bank. Under Turkish Commercial Code No. 6102 Art. 796, the position for instruments drawn within Türkiye is as follows: where payment is to be made in the place where the instrument was drawn, the holder must apply to the bank within 10 days; where the place of payment differs from the place of issue, that period is 1 month.
For instruments drawn outside the country in which payment is to be made, the criterion is whether the place of issue and the place where the bank is situated are on the same continent:
- Where the place of issue and the place of payment are on the same continent, the period allowed for presentment is 1 month.
- Where these two places are on different continents, the period is extended to 3 months.
This criterion has a special application in respect of the countries around the Mediterranean. An instrument drawn in a European country but payable by a bank in a country with a Mediterranean coastline is deemed to have been drawn on the same continent and is subject to the one-month period. The converse also applies: an instrument drawn in a country with a Mediterranean coastline and payable by a bank in a European country is likewise deemed to have been drawn on the same continent and must again be presented within 1 month.
For the details of the subject, our article titled Periods in Cheque Law may be consulted.
Presenting the Instrument to the Bank and the Absence of Funds
Where the instrument is submitted to the bank within the statutory period and the cheque account holds a sufficient balance, the holder obtains their claim. The other possibility that may be encountered is that the account does not hold funds in the amount stated on the instrument. In this situation, where the account balance does not cover the amount, a record of a dishonoured cheque is entered both on the instrument itself and in the records relating to the cheque account.
How Is the “Insufficient Funds” Endorsement Carried Out?
The authority to carry out the endorsement recording that the instrument is unfunded lies with the drawee bank, and the endorsement is effected upon the request of the holder. The legal basis of the institution is the Cheque Act No. 5941. Under Article 3 of that Act:
Cheque Act No. 5941 Art. 3
“The ‘insufficient funds’ endorsement is carried out, over and above the amount the drawee bank is legally obliged to pay the holder, limited to the portion of the amount of the cheque that cannot be met.”
The provision confines the scope of the endorsement to the portion of the amount that cannot be met. Upon the request of the holder, the following particulars must be written on the reverse of the instrument: the date on which the instrument was submitted to the bank for collection, the state of the account, the sum paid by the bank within the framework of its own obligation, and the forename and surname of the natural person who effected the presentment. Where the person presenting the instrument is collecting the amount on behalf of a legal person, that fact is also stated separately. The record is completed by the joint signature of the person presenting the instrument and the bank officer. Once the sum paid by the bank has been set off, the unfunded amount remaining is shown clearly.
Where the holder refuses to sign, the “insufficient funds” endorsement is not carried out. The position is different for banks, by contrast: when a request is made they are obliged to carry out the endorsement and may not refuse to do so on any ground whatsoever.
The judgment of the 19th Criminal Chamber of the Court of Cassation dated 20.02.2020, docket no. 2019/35817, decision no. 2020/415, sets out this obligation plainly:
“Where a cheque is presented to the bank by the entitled holder within the statutory period, the examination to be carried out on the cheque by the drawee bank must be confined to the matters set out in the Turkish Commercial Code No. 6102 and in the Act No. 5941. If there are sufficient funds in the cheque account, the drawee bank is obliged to pay the amount of the cheque to the holder. If there are not sufficient funds in the cheque account, it is then obliged, upon the request of the entitled holder, to carry out the ‘insufficient funds’ endorsement by writing on the reverse of the cheque the matters set out in Art. 3(4) of the Act No. 5941. Where a cheque is presented to the drawee bank by the entitled holder within the period and, notwithstanding the absence of sufficient funds, the ‘insufficient funds’ endorsement has not been carried out under Art. 3(4) of the Act No. 5941 on various grounds put forward by the bank, it was decided unanimously on 27/01/2020 that the natural person under the obligation to keep sufficient funds in the cheque account cannot be punished for the offence of ‘causing an insufficient funds endorsement to be carried out’.”
The drawing of a dishonoured cheque is provided for as an offence in the Cheque Act. Those who commit this act are subject to sanctions in the form of the return to the bank of all cheque leaves in their possession, a ban on issuing cheques and opening cheque accounts, and a judicial fine.
Independent Legal’s Assessment
In dishonoured cheque disputes, the element that determines the outcome is more often than not procedural error at the presentment stage rather than argument on the merits. A presentment made out of time may deprive the holder both of the enforcement remedies particular to the law of negotiable instruments and of the possibility of setting the criminal process in motion. As the judgment of the Court of Cassation cited above shows, a failure by the bank to enter the “insufficient funds” record at all likewise stands in the way of the account holder being punished.
The moment the instrument is submitted to the bank is therefore the critical threshold that determines the whole course of the file. In practice, we recommend that particular regard be had to the following points:
- Calculating the period for presentment, which begins on the day following the date of issue, at the outset by comparing the place of payment with the place of issue
- Verifying, at the moment of presentment, that the “insufficient funds” record has been entered on the reverse of the instrument together with all the elements the law requires
- Where a partial payment has been made, ensuring that the sum paid by the bank and the balance left unfunded are shown separately and clearly
- Where the amount is being collected on behalf of a legal person, stating that capacity in the record and documenting the power of representation
- Recording the position by means of a written record or a written application against the possibility that the bank refuses to carry out the endorsement
- Assessing in good time, following the “insufficient funds” record, the remedy to be pursued as regards the judicial fine and the ban on issuing cheques
Independent Legal provides advisory and litigation services at every stage of disputes arising from negotiable instruments, from the management of the presentment process to enforcement proceedings on negotiable instruments and the criminal proceedings conducted on account of a dishonoured cheque.