The right of cancellation and stop payment of cheques should only be exercised by a drawer and it was regulated in the section of payment and avoidance payment in the Commercial Code (hereinafter it will be referred to as CC).
In recent years, action of cancellation and stop payment of cheques are frequently applied in practice. However, the practice is also accompanying some disadvantages which caused by drawers in bad faith. What are the effects of an instruction given by the drawer to the drawee bank to cancel or stop payment of a cheque on the legal and penal remedies followed by a creditor? For instance, will it stop claiming a provisional attachment or nullify the offence of dishonoured cheque?
By this article, cancellation and stop payment of cheque and their effects on the rights of holder will be analyzed in the light of the Court of Appeal decisions.
CANCELLATION OF CHEQUE
Essentially, a cheque is a qualified assignment and the provisions of assignments were regulated in Code of Obligations. Accordingly, transferor may revoke from the assignment until the declaration of payment acceptance is notified to him by the payer of assignment (Article 461 of Code of Obligations). Cancellation of cheque was especially regulated by the legislator in recognition of being used as a payment instrument and breach of confidence.
Cancellation of a cheque was provided by article 711 of CC. “Cancellation of a cheque becomes effectual after presentation time has been expired. If the cheque has not been cancelled, the drawee bank might pay the cheque even though the presentation time has been expired.”
According to Article 711 of CC, it is not possible to cancel a cheque within the presentation time. The cheque can be cancelled after the presentation time. Is the provision of cancellation of a cheque does not become effectual even though the cheque was cancelled within the presentation time an imperious rule or is it not?
It was indicated that the rule of cancellation of a cheque within the presentation time deemed not to be effectual is not an imperious rule. If a drawee bank make payment to the holder of a cheque in the presentation time against the statement of cancellation, the bank shall not be responsible for this payment against the drawer. In respect of Article 708 of CC, the presentation time is ten days that starts from the drawing date.
The content of cancellation of a cheque is an instruction not to pay the cheque that was issued. The action of the drawee towards to drawee bank arises from the cheque agreement. The drawer actually does not cancel the cheque, but he merely revokes the payment authority given to the drawee. The cancellation of the cheque aims to protect the drawer and all reasons can be a ground for it which arise from the relation between the payee and besides that other reasons which drawer believes they are providing him right to make an incidental plea. Such as faulty substituted performance or the credit arises from other reasons. In cancellation of a cheque, the credit may be claimed within the general provisions by the beneficiaries and endorsees.
The drawer does not need to show its grounds and reasons for cancellation of a cheque. The cancellation can be made by in a written or verbal form. The written cancellation would be important in order to proof the application was made.
Cancellation of a cheque is a unilateral declaration to the drawee bank and it would be effectual from its arrival at the drawee. Therefore, the drawee bank has not discretion whether the declaration is justified. The drawee bank cannot charge the cheque amount to the drawee if it makes payment when the presentation time expired and there is a cancellation declaration. However, the drawee bank cannot be liable if it pays the cheque within the presentation time against the cancellation instruction.
If there is a valid cancellation of a cheque by the drawee, beneficiaries’ and endorsees’ rights remain unchanged but they cannot apply the rules of negotiable instruments in order to claim the cheque amount. Because, when the presentation time has been expired, the holder of due course would not be able to perform the right of application. However, cancellation of a cheque does not eliminate the original liability and therefore holder in due course can claim the credit against the drawer in frame of the general provisions.
STOP PAYMENT OF A CHEQUE
Article 711/3 states that “The drawer may stop payment of a cheque if he assert a claim that the cheque has been lost beyond his or third persons control.” The circumstances to be beyond control of the drawer or third persons are as regulated by Article 711/3 could be assumed as the cheque to be stolen, temporally or permanently to be lost or to be forced from him by third persons. To stop payment of a cheque does not depend on certain conditions as similar as cancellation of a cheque. Beside that, the drawee bank has not any discretion whether stop payment of a cheque is just. The bank has to obey the instruction to stop payment a cheque given by its client.
To stop payment a cheque does not depend on expiration of the presentment time in opposition to cancellation of a cheque. The Assembly of Civil Chambers of Supreme Court has rule out that, stopped payment a cheque is sort of cancellation of a cheque within the presentation time and has decided a case, where the drawee bank made payment negligently against instruction to stop payment of the cheque as “… stop payment a cheque by the drawer is a declaration of intent and constitutes a definite and immediate result upon received by the drawee. The drawee bank actually does not oblige to examine whether the cheque has been lost beyond the drawers control. When stopped payment a cheque has been presented to the drawee bank, the presentation date, instruction to stop payment, in addition whether or not there were funds has to be written on the cheque by the bank. However, if the cheque has been paid from the cheque amount, it should be compensated including with its interests and refunded to the drawee by the bank. If ever the cheque has been paid from the banks own fund, the paid amount cannot be requested from the drawee by the bank.”
In spite of instruction to stop payment of a cheque, the drawee bank should accept it and write this reason on the cheque. If there is a sufficient fund, the fund should be blocked. Otherwise, the bank should write “no fund” together with the presentation date on the cheque.
In practice, it has been experienced that some banks avoid writing on a cheque whether there was a sufficient fund. It should be underlined that, in case of stop payment of a cheque, the bank obliged to write on the cheque the stop payment instruction and, also, whether there was a sufficient fund.
Moreover, in accordance with Article 5 of Act No. 3167 , the drawee bank obliged to write failure of a cheque consideration upon its presentation or non-acceptance of partial payment on the cheque together with the presentation date. Otherwise, accordance with Article 15 of Act No. 3167, the heavy fine will be imposed on the bank and in which case the bank is represented by the branch manager.
Even though if there is a partial non-payment of a cheque, dishonoured cheque offense is also occurred. Besides that, according to Act No. 3167, in case of instruction to stop payment and insufficient fund for the cheque, the drawee is entitled to make a complaint against the drawee about dishonouring the cheque.
The Supreme Court has been decided in a case, the annotation “the drawee gave an instruction to stop payment a cheque in accordance with Article 711 of TCC” was insufficient and it should be asked the bank whether or not there was sufficient fund at the time of presentation of the cheque.
Besides that, the Supreme Court has decided in a decision that, stop payment of a cheque did not stop the claim of a provisional attachment and it was not occurred the qualifying conditions in order to object to the provisional attachment as stated by Article 265 of Execution and Bankruptcy Law (it will be referred as to EBL). Also the Court underlined that, cancellation of a cheque and instruction to stop payment of a cheque are different terms and it should be refused to objection to the provisional attachment because its reason cannot be acceptable which was the instruction to stop payment given by the drawer without presentation time expired was null and void.
The Assembly of Civil Chambers of Supreme Court decided that an instruction of stop payment is an action between a drawer and a drawee bank and it does not prevent to claim of the credit and the rights of holder of the cheque that arise from the cheque. One of mentioned legal ways was to claim provisional attachment and merely the credit became contentious by a stop payment instruction given by the drawer and with aforementioned ground to refuse the claim of provisional attachment by the cheque holder was found unlawful. The unilateral declaration of stop payment of a cheque cannot stop or invalidate enforcement proceedings made by the creditor unless a decree of annulment or temporary injunction against the enforcement proceedings have been granted by the court.
In case of a cheque has been lost, the holder in due course has obliged to give the cheque back if he acquired the cheque in bad faith or has acquired it with a gross negligence (Article 704 of CC). Apart from these two circumstances, the holder in due course has not obliged to give the cheque back and moreover he can exercise the legal remedies which arise from retaining the cheque.
In brief, according to settled decisions of the Supreme Court, in respect of Article 257 of EBL, stopped payment of a cheque is not a condition to claim the provisional attachment. The creditor holder can claim the provisional attachment and also continue to exercise the enforcement proceedings.
THE IMPACT OF STOP PAYMENT CHEQUES ON THE COMPLAIN TIME LIMIT FOR OFFENCE OF DISHONOURED CHEQUE
The offence dishonoured cheque is subject to complain. According to Article 16/b-2 of Act No. 3167, the complain time limit for offence of dishonoured cheque starts from the date of removal of the temporary injunctions or prohibition of payment. Especially, if any actions were not taken about the cheque on grounds of the existence of the temporary injunction or stopped payment of the cheque even though it was presented within the presentment time. This Article meaning may be misunderstood as the right of complain cannot be exercised unless the prohibition of payment a cheque has been removed. However, it should be understood as expressed by 10th Criminal Division of Supreme Court’s decision dated 18.06.2007, 2007/6016 E. and numbered 2007/7436. It was stated that “…the term of prohibition of payment expresses where the amount of the cheque was blocked and payment was prohibited by the court decisions. The instruction given by the drawer to stop payment a cheque merely based on Article 711/3 of CC, does not affect to exercise the right of complain and does not merely prevent the offence to be occurred without to be granted a court decision.”
The instruction to prohibition of payment given to the drawee bank, where the cheque account was opened, by the drawer on the grounds that the cheque has been lost beyond his control does not merely eliminate his criminal liability and right to claim the credit by holders. In this case, the drawee who gave the instruction to stop payment of cheque may release from the criminal liability for offense of dishonoured of a cheque if he proves that there was sufficient fund at cheque account at the time of presentment and a law suit for the establishment of a negative fact has been filed before the presentment time and the case has been won by him.
In accordance with Article 16 of Act No. 3167, the punishment of dishonoured cheque is to pay heavy fines which will be as much as the cheque amount. Likewise, the court also may decide to prohibit having a cheque account by the owner of the account and the authorized representatives between one year to five years. Also, this decision notified to the Central Bank of Turkey in order to be announced to all banks.
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1. Eris, G (2004) Annotated- Case Law Practical Cheque Law, Seckin Publishing, Ankara, p 236
2. Ibid, p 237
3. 11th Civil Chamber of Supreme Court, 2004/7185 E. 2005/6731 K. 27.06.2005 dated decision
4. Eriş, G, p 237
5. Ibid, p 236
6. Ertekin E, Karatas I (1998 ) Negotiable Instrument in Practice, Ankara (renewed and revised 3.edition) p 255
7. Eris, G, p 236
8. The Assembly of Civil Chambers of Supreme Court, 2005/11-224 E. 2005/229 K. and 6.4.2005 dated decision
9. Act No. 3167 “Law on Regulation of Cheque Payments and Protection of Holders of Cheque”
10. 10th Criminal Chamber of Supreme Court, 2005/6595 E. 2006/10207 K. and 19.09.2006 dated decision
11. 11th Civil Chamber of Supreme Court, 2004/7185 E. 2005/6731 K. and 27.06.2005 dated decision
12. The Assembly of Civil Chambers of Supreme Court, 2007/11-290 E. 2007/283 K. and 23.05.2007 dated decision
13. 12th Civil Chamber of Supreme Court, 2003/12679 E. 16029 K. and 4.7.2003 dated decision; 12th Civil Chamber of Supreme Court 2003/13540 E. 17816 K. and 18.9.2003 dated decision
14. The Assembly of Civil Chambers of Supreme Court, 2007/11-290 E. 2007/283 K. and 23.05.2007 dated decision
15. 10th Criminal Chamber of Supreme Court, 2007/6016 E. 2007/7436 K. and 18.06.2007 dated decision
