Dishonored cheque can be defined as a a cheque which a bank refuses to pay cash as at when presented for payment. When a bank Dishonours a cheque, it must give the reasons for dishonouring it, and such reason(s) will be written on the cheque
Example: R/D means Refer to drawer; I/F means insufficient fund; P/S means payment stopped; A/C means account closed, etc.
There are several reasons why a bank may dishonour a cheque on presentation, we are going to discuss few of them.
1. INSUFFICIENT FUND
When the amount of money written on the cheque for withdrawal is more than the account balance of the drawer, then the cheque will be dishonoured unless the customer has access to overdraft.
2. THE DEATH OF THE OWNER
A cheque will be dishonoured if the bank receives information about the death of its customer. The bank will not accept the cheque from the account until every issues has been cleared.
3. IRREGULAR SIGNATURE
If the signature which the drawer signs on the cheque which will be presented to the bank is different from the original specimen signature in the bank, the cheque will be dishonoured.
4. NON-EXISTING ACCOUNT
Sometimes, fraudsters who do not have any account with the bank but possess false false cheque books may give cheque to the people that defrauded.
If someone is judged by a law court to be unable to pay the debts he owe, the bank will not accept any cheque which is presented on behalf of it's Customer.
6. FROZEN ACCOUNT
If a court orders or a military government of a country makes a decree that some people's account should be frozen, the bank must dishonour all the cheques with the accounts' numbers involved.
7. WHEN THERE IS ALTERATION
If there is any cancellation on a cheque, the bank will have to dishonour such cheque, the bank can only accept the cheque if the drawer signs his signature above or under the altered words.
8. A POST-DATED CHEQUE
If a post-dated cheque is been presented for payment, the bank is going to dishonour such a cheque.
9. A STALE CHEQUE
A stall check is a cheque that has been delayed for more than six months of the date which was written on it. This type of cheque will be rejected on presentation.
10. IF THE AMOUNT WRITTEN IN WORDS IS DIFFERENT FROM THE AMOUNT WRITTEN IN FIGURES
The bank must definitely dishonour a cheque if the amount written in words is different from the amount written in figures. For instance, the drawer writes "30 Naira only" in words and N20.00' in figures.
11. WHEN PAYMENT IS STOPPED
This occurs if the owner of the account asks a bank not to pay a cheque which has been issued already.
12. A CLOSED ACCOUNT
If the drawer issues post dated Cheque and closes his or her account before the date the cheque was issued, when the cheque is presented for payment, it will be dishonoured by the bank.