Customer Cancelled Cheque

[minnehoma]

Can someone give some advice on how we stand with a customer who has cancelled a cheque please?

We accepted an order from this customer for £80k on the proviso that they paid 25% with order and then a further 25% on delivery, with the balance to be paid on our normal credit terms.

The customer forwarded a cheque for the 50% which was agreed as we couldn't get a credit rating for them. However, once the goods were delivered the customer rejected the goods due to poor quality.

My question is because the agreed 50% was to be paid upfront can the customer legally cancel the cheque on the basis that goods are not to their satisfaction.?

 

[Jazz1966]

Ask yourself the question, were the goods not of satisfactory quality or is the customer trying it on?
If the goods were not of satisfactory quality then I feel that the customer can cancel the cheque providing he has highlighted the problem with you and you have done nothing to resolve the issue. I guess it all depends what actions you have taken to resolve the customer's concerns and whether the customer's concerns are genuine.

 

[Root 66 Woodshop]

A cheque means nothing until it's banked and the funds are in your account.

Why didn't you wait until funds had cleared?

School boy error

 

[Lisa Thomas]

Can you clarify that you released the goods before you had cleared funds or are you talking about the payment of the balance afterwards?

 

[NickGrogan]

we couldn't get a credit rating for them

So why did you offer them £40,000 of credit?

No credit rating should mean full payment (cleared funds) with the order or a letter of credit.

If the company paid 50% via cheque, presumably you've already deposited that and it's cleared before you delivered?

Or have you still got the cheque?

 

[minnehoma]

Can you clarify that you released the goods before you had cleared funds or are you talking about the payment of the balance afterwards?

We received the cheque and banked it, we had no reason to believe the product was going to be faulty however, the reason for this initial payment was to cover the risk we were exposed to because of the size of the order. So had the cheque cleared before the goods had been delivered the agreement would have been completed. We have removed the product and returned to the manufacturer for rectification.

 

[minnehoma]

So why did you offer them £40,000 of credit?

No credit rating should mean full payment (cleared funds) with the order or a letter of credit.

If the company paid 50% via cheque, presumably you've already deposited that and it's cleared before you delivered?

Or have you still got the cheque?

The cheque was deposited but they cancelled it before it cleared.

 

[Chris Ashdown]

You supplied a company under the selling regs which gave them the right to return goods, if it met the timescale requirements in rejecting then that is their right and you would have had to refund the money anyway once you received the goods back

 

[NickGrogan]

The cheque was deposited but they cancelled it before it cleared.

Why were the goods sent before the cheque had cleared. Surely the point of the deposit was to give you some form of protection?

Having said that goods are poor quality then you'll have to refund anyway.

Have you seen the goods?

 

[MikeJ]

You supplied a company under the selling regs which gave them the right to return goods, if it met the timescale requirements in rejecting then that is their right and you would have had to refund the money anyway once you received the goods back

What regs are these then? This is a business to business arrangement, so distance selling doesn't come in to it.

 

[NickGrogan]

The Sale of Goods Act 1979 implies four terms into any contract for sale regardless of whether such sales are B2B or business to consumer (B2C).

These are as follows:

the transferor has good title and has the right to transfer the item sold;
the goods correspond with the description given;
the goods will be of a satisfactory quality and fit for their purpose; and
if a sample is provided, the goods will correspond with this sample.

Normally business buyers will not be entitled to a full refund under the terms of their contract if the product is only very slightly faulty, but this does not limit a business’ right to compensation for any loss caused.

Whenever good are bought or sold they should be of a satisfactory quality and match the description given. If a buyer believes something is wrong they can ask the seller to put things right, which could be by refund, repair or replacement.

http://www.ouryclark.com/site-asset...OC-Quick-Guide-Business-to-Business-sales.pdf

 

[minnehoma]

I think everyone is focusing too much on the fact they rejected the product.

The 50% upfront payment wasn't agreed as to whether the product was 100% accurate or not it was to limit our risk for the order.

We have returned the product for rectification and the product will be sorted out.

I wanted to know if for an agreement to reduce the risk (which all parties knew about) the customer can cancel the cheque.

We have acted swiftly to rectify the problem.

 

[NickGrogan]

There are two parts.

Firstly, the upfront payment didn't reduce your risk at all because you sent the product before payment had cleared. This was the second mistake.

The first mistake was to offer £40,000 in unsecured credit to a company with no credit rating.

Whether they should or shouldn't have cancelled the cheque doesn't matter, they already have.

Secondly, if the product has been rejected and they have a valid reason to reject it then you need to either fix the problem or refund them. This seems to be under way.

They are also able to try and recover costs from you for the faulty product, normally by getting a discount on the price.

What does the purchase order / terms say about payment?

 

[Root 66 Woodshop]

There are two parts.

Firstly, the upfront payment didn't reduce your risk at all because you sent the product before payment had cleared. This was the second mistake.

The first mistake was to offer £40,000 in unsecured credit to a company with no credit rating.

Whether they should or shouldn't have cancelled the cheque doesn't matter, they already have.

Secondly, if the product has been rejected and they have a valid reason to reject it then you need to either fix the problem or refund them. This seems to be under way.

They are also able to try and recover costs from you for the faulty product, normally by getting a discount on the price.

What does the purchase order / terms say about payment?

Refund them with what? the cheque was cancelled - there was no payment made therefore no need to refund...

discount is questionable too TBH.

 

[NickGrogan]

The OP seems to trying to chase payment.

In terms of discount, depends on the problem and the terms of the purchase order.

 

[Root 66 Woodshop]

Exactly my point, so how can he be expected to refund if payment hasn't been received?

 

[kulture]

This is a B2B contract. What does the contract say? Or did you just go ahead with just a verbal agreement?

A proper contract will say what the deposit is for, how much is retained if the product is rejected and returned, and will say on what basis a product can be rejected. It would probably say a whole host of other things. By paying a cheque the buyer would have thus agreed to the contract.

But my guess is that you have no formal detailed written contract that would protect you.

 

[Mr D]

To get £40k credit with no credit rating...

Who says the days of easy credit died in 2008?

Just out of interest OP, if the goods have been rejected and returned to the manufacturer, along with the cheque cancelled, what exactly is the issue now?
Are things not back to how they were before you started? You aren't risking a large sum in credit, you aren't out the cost of the goods, the buyer hasn't got what they wanted?

 

[obscure]

The 50% upfront payment wasn't agreed as to whether the product was 100% accurate or not it was to limit our risk for the order.

Sorry but the contract you entered into was to supply goods in return for payment and the law requires that those goods be fit for purpose and as described. You may have chosen a payment method that you (incorrectly) hoped would limit your risk but the actual purpose of the payment was to pay for the goods.

I wanted to know if for an agreement to reduce the risk (which all parties knew about) the customer can cancel the cheque.

As above, the contract was for the supply of goods, not the limitation of risk. You failed to supply the goods (in an acceptable state) and your customer failed to pay. The cancelling of the cheque is meaningless in the grand scheme of things - all it means is that you never actually received the money (so you never actually reduced your risk).

I suppose you could ask them to reimburse any bank fees you incurred as a result of the cancellation... and they can seek reimbursement from you for any loss incurred by your failure to meet you obligations under the contract. Alternatively you could stop worrying about unimportant details worth piddling amounts of money and focus on the real issues....

Once the faulty goods have been sorted out you will be faced with having to convince your customer to make the 50% payment again or else take the risk of releasing the goods (to a client with no credit rating) without pre payment. Of course it is entirely possible that your client will refuse on the basis that they want to see the goods are 100% correct before paying. At which point you need to choose between an 80k risk or walking away from the deal.

 

[Ian J]

In the good old days if someone asked a question on UKBF people would proffer an answer - if they knew it, that is. Unfortunately nowadays all people get is a lecture on everything that they are deemed to have done wrong whether that answers the question or not and it seems that in this case quite a number of people have jumped onto the lecture bandwagon.

To answer the question, issuing a cheque is proof of debt and if a cheque bounces you can issue proceedings on the basis of that bounced cheque rather than any other reason

 

[kulture]

To answer the question, issuing a cheque is proof of debt and if a cheque bounces you can issue proceedings on the basis of that bounced cheque rather than any other reason

You are absolutely correct. That is indeed part of the answer. The other part is what was the condition of the goods? Were they as described or were they not fit for purpose. Absent any B2B terms and conditions the bare bones of the contract is the buyer agreed to pay £80,000 for goods. The seller supplied them. The buyer rejected them. Whilst the cheque payment clearly shows agreement to the contract and you can obviously issue proceedings based on that, it may well fail because of the fact that the goods were then rejected.

 

[Supercoach]

In the good old days if someone asked a question on UKBF people would proffer an answer - if they knew it, that is. Unfortunately nowadays all people get is a lecture on everything that they are deemed to have done wrong whether that answers the question or not

+1

 

[Chris Ashdown]

Sorry Ian, but your to young to remember there was NO good old days, just the same old hard slog

Even the swinging sixties as a teenager, I never got my fair dues of free sex everyone else seemed to get in abundance

 

[Ian J]

Sorry Ian, but your to young to remember there was NO good old days, just the same old hard slog

Even the swinging sixties as a teenager, I never got my fair dues of free sex everyone else seemed to get in abundance

I think that we're about the same age Chris and like you I read all about the sexually liberated women and wondered where it was all happening as it didn't seem to be in my town

 

[Mr D]

Sorry Ian, but your to young to remember there was NO good old days, just the same old hard slog

Even the swinging sixties as a teenager, I never got my fair dues of free sex everyone else seemed to get in abundance

They had sex back then?
Ewwww….

 

[Gecko001]

This on stopped cheques might be helpful:

https://catosolicitors.uk/cheque-rule-think-carefully-before-stopping-a-cheque/

 

[The Byre]

1. The issuance of a cheque or similar 'promise to pay' such as an IOU or a letter-of-credit is its own little contract and is an acknowledgement of the duty or desire to pay that sum.

2. A 'promise-to-pay' can only then be cancelled if the underlying substance of the payment and contract is deemed fraudulent, illegal or totally nonexistent.

3. The issuance of a cheque is a formal admission of a requirement to pay. For that reason, a summary judgement (a judgement without hearing) may be applied for.

4. The procedures around a so-called 'Summary Judgement under Part 24 of Civil Procedure Rules' really do require the services of a lawyer with extensive experience of contract law.

5. Now is the time to sit down with the customer and discuss the hows whens and wherefores of payment and delivery of goods, before unleashing The Dogs of War!
__________________________________

60s sex - the girls in Scunthorpe were easy. Ugly, yes and with an aroma of chips, but easy!

 

[rpbizman]

surely they would have asked for a refund anyway.

Next time id say wait for the cheque to clear

 

[Blaby Loyal]

I still can't tell whether or not they cancelled the cheque after they had found the goods to be faulty.

That being the case then it'd be an extremely good lawyer who'd advise to issue a claim form and make a subsequent application for summary judgment.

If the goods were faulty then that in itself would surely demonstrate that the other side would have a real prospect of a defence.

 

[Root 66 Woodshop]

I'm still waiting for someone to ask...

Whats a cheque?

 

[Michael Gerard]

Ignore the underlying contract that the cheque was issued against - the OP has a cause of action in relation to the contract for the stopped cheque - as others have pointed out in this thread, called 'the cheque rule' BTW, I wrote that article that Gecko001 has put a linked to. The OP should consult a local lawyer or better still, a barrister with direct access.

 

[Blaby Loyal]

Ignore the underlying contract that the cheque was issued against - the OP has a cause of action in relation to the contract for the stopped cheque - as others have pointed out in this thread, called 'the cheque rule' BTW, I wrote that article that Gecko001 has put a linked to. The OP should consult a local lawyer or better still, a barrister with direct access.

I'm sorry but I'm not getting this about the rights on the cancelled cheque at all.

As far as I can make out, the OP ('A') agreed to supply something specific ('widgets') to the customer ('B').

B agreed to pay £50k (as an initial payment) and the payment was made by cheque. A released the goods and they were delivered to B before B's cheque had cleared.

On delivery, B finds that the widgets were not as specified/ordered and cancels the cheque.

From what you are saying B is in the wrong and A is in the right.

My question is - how can this be correct? On the basis of what many seem to be stating, even if A had simply sent a bag of carrots to B then B would still be wrong in cancelling the cheque. That just doesn't make sense.

 

[Michael Gerard]

Blaby Loyal - the cause of action lies in the cheque being dishonoured, as opposed to the contract for the [initial] supply of goods (or goods and services). Once a cheque has been signed and handed over, then a legally binding contract is entered into and the payer has to honour the debt.

When a cheque is issued as consideration for goods and/or services, a separate contract is entered into between the seller and purchaser to the contract that was previously entered into for the supply of the goods and/or services. Hence when a cheque is returned unpaid, the seller may elect to bring a claim either under the supply contract or, the separate contract entered into when the cheque was issued to the seller. If the seller elects to bring a claim under the cheque contract, this is referred to as the 'Cheque Rule'.

The foundation for this cause of action is in the basis that cheques are a bill of exchange, being construed as the equivalent to instalments of cash, albeit deferred, and as such are unconditional promises to pay based upon the presentation of the cheque. If the cheque is stopped or is returned unpaid for whatever reason, a good cause of action arises.

The Cheque Rule applies to payments made by:

1. Direct debit.
2. Cheques and bills of exchange.
3. Letter of credit.
4. Performance bonds.

There are exceptions to the rule, for instance where the customer has received absolutely nothing in exchange for their payment (arguably faulty goods is still something received), or where the contract was illegal, or the cheque was obtained in a fraudulent way. And if the cheque is for more than £750, then the statutory demand route could be the way to go.

 

[Blaby Loyal]

Thank you for your comprehensive clarification Michael - greatly appreciated.

Is the so-called "Cheque Rule" not open to abuse though if someone was to use my bag of carrots example?

 

[The Byre]

No, because that would be a fraud.

 

[Michael Gerard]

Blaby - from your example, B would be at severe risk if he was to cancel the cheque just on the assertion that the order was wrong. B would be on much better ground if A had delivered nothing.

 

[Blaby Loyal]

No, because that would be a fraud.

Why would it? It's no different from sending something that is not as specified. B asked A for something specific. A delivered something which was not specific and now has some weird right to sue B for the money.

"... the law is a ass-a idiot"