You may have cause to sign a cheque while going about the normal course of your business. If you sign a post dated or undated cheque, you could end up in jail.
If you’ve ever been the target of a debt collection agency, you’ve probably been offered the option of using postdated and/or undated cheques to pay what you owe.
Most people do not fully understand their rights or liabilities when using this form of debt settlement, nor the laws governing their use and acceptance. Be aware that there are instances in which postdated cheques presented by creditors but returned by the bank for ‘non-sufficient funds’ may be deemed fraudulent, and could thereby result in civil and criminal penalties.
Post-dated and undated cheques serve as one of the most popular forms of security to guarantee the risk of loan default. A post-dated cheque contains the total amount to be paid by the borrower; capital and accrued interest as well as the due date the loan has to be paid. The cheque can either be issued by the borrower or a guarantor of the borrower. And the cheque is kept safely in custody of the lender (financial institution).
As secured as this form of collateral might appear, lenders bear the risk of being disappointed when the cheque is issued to the borrower’s or guarantor’s bank. The risk of a failed cheque popularly known as a “bounced” or “dud” cheque is common in a loan transaction demanding collateral of this type. A bounced cheque is an event where a borrower’s or guarantor’s bank cannot accept a cheque as a result of insufficient funds or wrong signature on the cheque. This can be referred to as an empty or worthless cheque that has no monetary value or no money can pass through it.
Hence a bounced cheque is both an embarrassment to the payee (lender issuing the cheque) and the bank. On the part of the lender, a bounced cheque poses greater exposure and can lead to insolvency if there are several occurrences. On the part of the bank, if a dud cheque is honoured mistakenly, it can lead to serious accounting and financial problems for the bank.
A bounced cheque is considered a serious criminal offence in most countries including Nigeria. Unfortunately, most borrowers are not aware of the criminal implication of this. And have to face the consequence.
The DISHONOURED CHEQUES (OFFENCES) ACT, 1977 caters for the criminality of a bounced cheque. On conviction under Dishonoured Cheques Offences Act, 1977; an individual shall be sentenced to imprisonment for 2 years without an option of fine while in the case of a body corporate (Companies, Business and Non-Government Organisations, etc) it shall be sentenced to a fine of not less than N50, 000. A company involved in the issuance of the dud cheque is liable as a corporate body while its owners and staff by whatever title or description that consented, connived or was negligent in duty are punishable and liable individually.
A bounced or dud cheque is considered a serious criminal offence in most countries including Nigeria. It attracts a jail sentence of 2 years.
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