Problem: Hello. I have a customer who is delaying / not paying an invoice. I have found out from another tradesperson that this is not the first time that he has done this. I have recently written to this customer, given them a deadline and advised that if they did not pay by the given date further action would have to be taken. Before issuing the letter I had made repeated attempts to collect the money. There have been several meetings arranged between us but the customer has failed to attend. I did receive on one occasion a cheque for the full amount. The cheque was post-dated, but when I presented the cheque it bounced! I still have the original cheque in my possession. I would greatly appreciate any help.
Thank you. Robert, Great Bowden
Response: Hello Robert. This scenario is all too familiar and I apologise to the readers if my advice appears to be Déjà vu!
Yur action lies in the cheque being dishonoured, as opposed to the contract for the supply of goods and services. Once a cheque has been signed and handed over, then a legally binding contract is entered into and the payer has to honour the debt.
When a cheque is issued as consideration for goods and/or services, a separate contract is entered into between the seller and purchaser to the contract that was previously entered into for the supply of the goods and/or services. Hence when a cheque is returned unpaid, the seller may elect to bring a claim either under the supply contract or, the separate contract entered into when the cheque was issued to the seller. If the seller elects to bring a claim under the cheque contract, this is referred to as the ‘Cheque Rule’.
The foundation for this cause of action is in the basis that cheques are a bill of exchange, being construed as the equivalent to instalments of cash, albeit deferred, and as such are unconditional promises to pay based upon the presentation of the cheque. If the cheque is stopped or is returned unpaid for whatever reason, a good cause of action arises.
The Cheque Rule applies to payments made by:
- Direct debit.
- Cheques and bills of exchange.
- Letter of credit.
- Performance bonds.
There are exceptions to the rule, for instance where the customer has received absolutely nothing in exchange for their payment, or where the contract was illegal, or the cheque was obtained in a fraudulent way.If the cheque is for more than £750, then the statutory demand route is the way to go.
© Michael P. Gerard
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.
Author background
Michael is a Practising Solicitor, Barrister, Chartered Builder, Registered Construction Adjudicator & Accredited Expert in quantum and planning matters. He is based in Leicestershire.