Banking Operations: When Countermand of Payment is Effective

1.1    The Meaning of Countermand of Payment

Countermand means stoppage, cancellation, taking back, or removal of previously given orders or instructions. Countermand of payment therefore means stoppage, cancellation or removal of an order or instruction already given by a customer, to the bank, to pay a certain amount of money. A bank’s duty to pay is terminated by countermand of payment by the customer.

A customer can countermand the payment of a cheque at any time before such cheque is paid; and once an effective notice of payment has been received by the bank, such bank may not be able to debit the customer’s account is the cheque is paid.

1.2    Conditions for an Effective Countermand Instruction

For a countermand instruction to be effective, the following conditions must be met:

(a)       The stop notice has to be given in writing by the customer. Interim notice given on telephone must be confirmed in due course. In this interim, if the cheque is presented, it can be returned, marked ‘drawer confirmation being awaited’.

(b)       The stop notice must be served on the branch where the account is kept. Not in the head office or any other branch of the bank (London Provincial and South Bank Vs Buzzard, 1918).

(c)        The notice must be actual and not constructive. This means that it must actually come to the bank before it can become effective (Curtice Vs London City and Midland Bank, 1908).

(d)       Only the drawer has the right to stop the payment of a cheque. In the case of a company, the company secretary may give a countermand order if the company signatories are not immediately available. In the case of partners, any active partner can stop a cheque, even if he is not a signatory to the account. A principal can stop a cheque drawn by his agent. It is not appropriate for the payee of a cheque (who is not the drawer) to countermand the payment of the cheque. However in practice, a payee can file a caution notice by reporting any loss of a cheque to the bank, while getting in touch with the drawer. This averts any possible presentation by a wrong person before and effective countermand of payment by the drawer.

(e)       Full, sufficient and correct details of the cheque that is being countermanded must be given to the bank. The necessary details are account number, cheque number, payee’s name, date of issue of the cheque, and the amount of the cheque. In Westminster Bank Ltd. Vs Hilton (1926), Hilton issued a cheque number 11783 but the telegram to the bank was to stop a cheque number 11785. When cheque 11783 was presented to the bank, the bank paid it. This payment exhausted the balance on the account and as result of this; a cheque that was subsequent presented to the bank was dishonoured for lack of fund in the account. In an action brought against the bank, it was decided that the bank was not liable since the customer failed to give the correct information about the cheque. In this particular case, it was decide that cheque is the most important identification when giving a countermand instruction. This is the only information that cannot be duplicated. Two or more cheques of the same amount can be issued to the same payee, the same drawer on the same date; but the cheque serial number will be different.

With the above conditions, one can conclude that a bank cannot debit a customer’s account for a validly stopped cheque that was carelessly paid. A negligently paid cheque can be countermanded and the liability would be borne by the bank.

1.3    Countermand of Payment and Irrevocably Paid Cheques

There are questions about irrevocably paid cheques that cannot be countermanded. There is the need to make clear distinction between a carelessly paid cheque (which can be countermanded) an irrevocably paid cheque (which cannot be countermanded). The following cases are worthy of note:

      I.        In the case of a clearing cheque - when the number of days allowed under the clearing house rule has not elapsed;

    II.        In the case of a cash cheque – after the cash must have been handed over the payee over the counter, even if the payee is still counting the money;

   III.        If the drawer and the payee are customers of the same branch, and the payee, when lodging the cheque asked for its fate from the banker and he was told that it was good for payment.

  IV.        If before presentation of the cheque to the paying bank, the collecting banker asked for its fate and the paying banker gave its commitment to pay the cheque. In this situation, the best answer that can remove the paying banker from any liability if the cheque in point is countermanded is ‘Yes, if the cheque is regularly drawn and if in our hands now’

   V.        Cheques paid under credit card arrangements.

1.4    Removal of a Countermand of Payment Instruction

It is possible to remove a countermand of payment order passed on to a banker. It should however be stressed that the instruction to remove as countermand order must be signed by all signatories.