Banking Law

• Published date: 01 December 2005
• Author: POH Chu Chai LLB (University of Singapore), LLM, LLD (London); Advocate and Solicitor (Singapore); Associate Professor, Faculty of Law, National University of Singapore.
• Date: 01 December 2005
• Citation: (2005) 6 SAL Ann Rev 69

Negotiable instruments

4.1 Under normal circumstances, a cheque holder has to present the cheque for payment before he is entitled to sue on the cheque. A holder”s failure to present a cheque for payment leads to a discharge of the drawer and indorser. Further, the fact that a holder has reason to believe that a cheque will on presentment be dishonoured does not dispense with the need for presentment. However, a holder is excused from presenting a cheque for payment under s 46(3)(c) of the Bills of Exchange Act (Cap 23, 2004 Rev Ed) where ‘the drawee or acceptor is not bound, as between himself and the drawer, to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid if presented’. One situation where a drawee is not bound to pay a cheque is when a drawer has no funds in his account and the drawer has no reason to believe that the cheque will be paid if presented. In Fiorentino Comm Giuseppe Srl v Farnesi[2005] 1 WLR 3718, Deputy High Court Judge Nicholas Warren QC, decided, inter alia, that a payee was excused from presenting a cheque for payment if the drawer had no reason to believe that the cheque would be paid because he had no funds in his account.

4.2 The onus of showing an absence of funds in a drawer”s account rests with a payee. If a payee is able to show that a drawer did not have funds in his account to pay the cheque, he is excused from presenting the cheque for payment. In City Hardware Pte Ltd v Goh Boon Chye[2005] 1 SLR 754, V K Rajah J decided, inter alia, that when a drawer had no funds in his account, a payee was excused from presenting the cheque for payment. The defendant was the managing director of Kenrich Electronics Pte Ltd (‘Kenrich’), while a Mr Lau Chui Chew was the managing director of City Hardware Pte Ltd. To show his support for Kenrich”s business, the defendant gave Lau a signed blank cheque in March 2000, saying that the cheque could be used if Kenrich defaulted on its obligations. When Kenrich defaulted, the plaintiff filled up the cheque on 30 June 2003 for $576,621.54. The cheque was deposited into the plaintiff”s bank account but the cheque was returned by the bank without being presented to the drawee bank since the cheque was not in the approved format for automated clearance and could not be

electronically processed. No attempt was made by the plaintiff to present the cheque manually. On 8 March 2004, the plaintiff commenced legal proceedings against the defendant on the cheque. The court decided, inter alia, that presentment of the cheque for payment was excused since there was sufficient evidence to show that the defendant did not have funds in his account to pay the cheque. Rajah J said at [20]—[21] and [26]:

The plaintiff has in the alternative pleaded that the defendant had insufficient funds in his account at all material times and in the circumstances, the necessity for physically presenting the Cheque had been dispensed with. It bears mention that the defendant conceded during cross-examination that he never had sufficient funds in his account to settle the invoiced amounts due to the plaintiff from time to time. Indeed he acknowledged that he had, during the entirety of the material period, less than $1,000 in his account. It is therefore pertinent, at this juncture, to pause and consider the sustainability of the defence of non-presentment in an instance where the drawer has insufficient funds in his account and the holder does not reasonably believe that the instrument will be paid if presented.

Prima facie all bills of exchange, inclusive of cheques, must be presented for payment in order to engage the payment undertaking of a drawer or indorser: s 45(1) BEA [Bills of Exchange Act]. If not so presented the drawer and indorser will be discharged: s 45(2) BEA. Generally speaking, presentment ought to be effected even if it might be ineffective …

… I am satisfied, given the history of their relationship and the defendant”s ‘ownership’ of Kenrich, that it was reasonable for the plaintiff to conclude that the Cheque would not be paid on presentment and that it would be pointless to effect a direct presentment of the Cheque on the defendant. As it turns out, the facts have subsequently vindicated the plaintiff”s course of action. The defendant had not made, and could not make, any arrangements with his bank to effect payment on the Cheque.

4.3 The second situation where a payee is presumably excused from making a presentment for payment arises under s 46(3)(c) of the Bills of Exchange Act when a cheque is countermanded by a drawer. If a drawer countermands a cheque, he ‘has no reason to believe that the bill would be paid if presented’. If a payee is excused from presenting a cheque for payment when the drawer has no funds, he should equally be excused if the cheque is countermanded by the drawer. However, in Henny Sutanto v Suriani Tani[2005] SGHC 82, Lai Siu Chiu J decided, inter alia, that a payee was not excused from presenting a cheque for payment even though the drawer had informed the payee that the cheque had been countermanded. The plaintiff, Henny Sutanto (‘Sutanto’), granted loans amounting to

$670,000 to the first defendant, Suriani Tani. The second defendant, Chandra Suwandi (‘Chandra’) was the sole proprietor of a firm, Global Standard Marketing (‘Global’). In partial repayment of the plaintiff”s loans, Suriani gave Sutanto five cheques. Two cheques, totalling $150,000, were drawn by Suriani on his bank account. The other three cheques totalling $515,000 were post-dated and drawn on Global”s account. Suriani was an authorised signatory of Global”s bank account. The plaintiff obtained a judgment in default of appearance against the first defendant on 9 May 2003. The claim against the second defendant went to trial before Lai J. The second defendant raised a number of defences. Firstly, the cheques were issued without proper authority. Secondly, there was no consideration for the cheques as he did not borrow any money from the plaintiff. Thirdly, the loans were moneylending transactions and the plaintiff was not a licensed moneylender. Fourthly, there was a subsequent compromise as well as accord and satisfaction. Finally, the plaintiff failed to present the three cheques for payment on their due dates. The court found that the plaintiff was not a moneylender but upheld the second defendant”s remaining defences. Lai J said at [56]:

In summary (contrary to the submissions made on the plaintiff”s behalf), the second defendant was not a drawer as he did not sign any of the three cheques (see s 23(1) of the BEA). The plaintiff was the payee, not the holder in due course, of the three cheques, there being no negotiation of any of the three cheques (s 29(1) of the BEA) to the plaintiff. No consideration was provided by the plaintiff to the second defendant for any of the three cheques (s 27 of the BEA). The three cheques were not presented for payment under s 45(1) of the BEA and the plaintiff could not bring herself within any of the exceptions to presentment under s 46(3) thereof. Indeed, s 46(4) of the BEA required the plaintiff to present the three cheques for payment, even if she knew they would be dishonoured when presented.

4.4 The plaintiff”s appeal was considered by the Court of Appeal in Henny Sutanto v Chandra Suwandi[2005] SGCA 45. The Court dismissed the appeal on the ground that the plaintiff”s failure to present the cheques for payment was fatal to her claim. Tan Lee Meng J, delivering the court”s judgment, said at [12]:

Mdm Henny contended that she was entitled to rely on s 46(3)(e) of the said Act but the trial judge found that there was no proof that the presentment of the three cheques had been waived...