Cheque

Sample for a fictional cheque in the United Kingdom. The cheque is crossed (with ACCOUNT PAYEE written vertically in the middle of the cheque), which means that it can only be paid into a bank account, not to cash. Cheques issued in other Commonwealth countries are similar.

A cheque (CwE) or check (AmE), thought to have developed from Persian چك chek, is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.

History

During the first century A.D., banks in the Persia (Iran) and other territories in Persian empire under Sassanid dynasty issued letters of credit known as Sakks. They are considered the basis for the modern cheque.

The cheque had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (e.g. gold) to purchase goods and services. A draft is a bill of exchange which is payable on demand of the payee.

The cheque was originally called a "check" in reference to the counterfoil used to check against forgery and alterations. The spelling "cheque" seems to have been introduced by J. W. Gilbart in 1828 (A practical treatise on banking, 2nd ed, 1828, Effingham Wilson, London). He explains in a footnote 'Most writers spell it check. I have adopted the above form because it is free from ambiguity and is analogous to the ex-chequer, the royal treasury. It is also used by the Bank of England "Cheque Office"'. According to Holden, the older spelling survived in some English text-books in the 1920s (M J Holden, History of Negotiable Instruments in English Law, 1955, University of London Press, London).

The older spelling is more common in the USA, but the UK and most Commonwealth countries have adopted the newer form "cheque".

Parts of a cheque

A cheque shall contain:

1. place of issue
2. cheque number
3. account number MICR
4. date of issue
5. payee
6. amount of currency
7. signature of the drawer

A cheque is generally valid for six months after the date of issue unless otherwise indicated, but this varies depending on where the cheque is drawn. In Australia, for example, it is fifteen months. Legal amount (amount in words) is also highly recommended but not strictly required.

Types of cheques

In the United States, cheques are governed by Article 3 of the Uniform Commercial Code.

• An order cheque – the most common form in the US – is payable only to the named payee or his or her indorsee, as it usually contains the language "Pay to the order of (name)."
• A bearer cheque is payable to anyone who is in possession of the document: this would be the case if the cheque does not state a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the cheque is payable to someone who is not a person or legal entity, e.g. if the payee line is marked "Happy Birthday".

In the United States, the terminology for a cheque varies with the type of financial institution on which it is drawn. In the case of a savings and loan association it is a negotiable order of withdrawal; if a credit union it would be a share draft. Cheques as such are associated with chartered commercial banks, but under Article 3, and thus in common usage, cheque is understood to mean any or all of these negotiable instruments.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.