The Bearer’s Right of Recourse
Our Associate Fatima Alsayed explains the bearer’s right of recourse in cheque transactions under Bahrain’s Law of Commerce and its role in ensuring secure financial exchanges.
Fatima Alsayed ([email protected]) – Associate
Cheques have long been a fundamental instrument in financial transactions, offering a secure and convenient method for transferring funds in personal and business dealings. However, the functioning of cheques is governed by various legal principles, one of which is the bearer’s right of recourse. Understanding this right is crucial for anyone engaged in cheque transactions, as it delineates the responsibilities and protections involved in the process, ultimately promoting confidence in the use of cheques as a reliable means of payment. In this article, we will address the provisions that regulate it in the Kingdom of Bahrain.
Procedures for Dishonored Cheques and Liabilities of Parties
The principal law governing cheques in the Kingdom of Bahrain is Law No. (7) of 1987 issuing the Law of Commerce under Articles 446 to 491 (the ‘Law’). Article 480 of the Law provides that if the holder of the cheque (the ‘Bearer’) presents the cheque within the prescribed period and the amount has not been paid, the Bearer can seek payment from several parties, including the person who endorsed it (the ‘Endorser’), the person who issued it (the ‘Drawer’), and others who might be responsible. To do this, the bearer must prove that the payment was refused. This can be done in two ways; through protest, a formal statement that payment was refused, or through a written statement from the person who was supposed to pay (the ‘Drawee’), indicating that the cheque was presented and not paid, along with the date it was presented. Alternatively, a written statement from a financial institution can also serve this purpose, confirming that the cheque was delivered on time but was not paid.
The Drawee cannot refuse the Bearer’s request for a written statement, even if the cheque states ‘without expenses’. However, the Drawee can request for a grace period not exceeding four working days following the presentment of the cheque, even if the cheque is submitted on the last day of the prescribed period.
Bearer’s Right of Recourse Against Drawer Despite Non-Presentation of Cheque
The Law gives the Bearer the right to seek payment from the Drawer even if they did not present it to the Drawee or take any other required actions on time. This is provided under Article 481 of the Law, which stipulates that “The holder of a cheque reserves the right to have recourse against the drawer even when the holder fails to present it for payment to the drawee, to make a protest or to carry out any alternative action within the prescribed period, unless the drawer has provided the required funds for payment thereof, and such funds remained with the drawee until the expiry of the prescribed period for presentment, after which the funds ceased to exist through an act not attributed to the drawer”.
In consideration of the text of this Article, the Bearer, notwithstanding their failure to present the cheque for payment during its prescribed period, has a right of recourse against the Drawer only if (i) the Drawer has not deposited sufficient funds for the cheque amounts into their account and (ii) the funds did not remain in the account until the time the Bearer was required to present the cheque for payment.
This has been considered by the Bahraini Court of Cassation in several challenges and most recently under Challenge No. 231 J.Y.2015. In this challenge the Court held “The text of Article 481 of the Commercial Law confirms that the bearer of the cheque has the right of recourse against the drawer, even if he does not present the cheque to the drawee bank, unless the drawer has made available consideration for its fulfilment that remained with the drawee bank until expiry of the period [permitted] for the presentation of the cheque and such consideration became unavoidable due to an act that is not attributable to the drawer. The burden of proof to establish the availability of the consideration falls upon the drawer”.
In Challenge No. 64 J.Y. 1996 and Challenge No. 533 J.Y. 2005, the Bahraini Court of Cassation also ruled that “Although the appellant argued that the respondent’s right to recourse against him had expired according to Article 466 of the Law of Commerce, Article 481 of the same law stipulates that ‘the bearer reserves the right to have recourse against the drawer, even when he fails to present the cheque to the drawee, to protest, or to take an alternative action within the prescribed period, unless the drawer has provided the required funds for payment, and such funds remain with the drawee until the expiration of the prescribed period for presentment of the cheque, after which the funds cease to exist due to an act not attributed to the drawer’. Since the burden of proving the existence of the funds falls on the drawer, and the appellant did not present evidence of their existence before the court nor requested permission to prove their existence through various means of evidence, the contested ruling, having concluded that the records did not indicate the presence of funds for payment with the drawee and based its decision to reject the mentioned plea, has applied the law correctly”.
Concluding Remarks
In conclusion, the legal framework governing cheques in the Kingdom of Bahrain provides essential protections for all parties involved in cheque transactions. By ensuring that bearers can seek payment from drawers even without timely presentation of the cheque, the law fosters a more secure and trustworthy environment for financial exchanges.
For more information, please contact us on [email protected]