Cheque

History

During the first century A.D., banks in Persia and other territories in the Persian empire under Sassanid Empire 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.

Indeed, fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent.

The cheque was originally titled such (variously spelled check, checque and cheque) in reference to the counterfoil used to check against forgery and alterations. In usage up to and including 18th century, cheque had survived as a variant spelling for the word in other meanings (e.g., 'examination', 'inspection') as well, but during that period, the spelling cheque in the sense 'bank note' and check in all other senses appear to have become distinct and cemented among all the English-speaking world outside the U.S.

James William Gilbart in 1828 (A practical treatise on banking, 2nd ed, 1828, Effingham Wilson, London) 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 spelling check survived in some English text-books into the 1920s (M J Holden, History of Negotiable Instruments in English Law, 1955, University of London Press, London).

While the British Isles and all Commonwealth countries have adopted the spelling cheque, the U.S. has retained the form check.

Parts of a cheque

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

In the USA and some other countries, cheques contain a memo line where the purpose of the cheque can be indicated as a convenience without affecting the official parts of the cheque. This is not used in Europe.

Types of checks in the United States

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

* An order check – the most common form in the United States – is payable only to the named payee or his or her endorsee, as it usually contains the language "Pay to the order of (name)."

* A bearer check is payable to anyone who is in possession of the document: this would be the case if the check does not state a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the check is payable to someone who is not a person or legal entity, e.g. if the payee line is marked "Happy Birthday".

* A counter check is a bank check given to customers who have run out of checks or whose checks are not yet available. It is often left blank, and is used for purposes of withdrawal.

In the United States, the terminology for a check historically varied with the type of financial institution on which it is drawn. In the case of a savings and loan association it was a negotiable order of withdrawal; if a credit union it was a share draft. Checks as such were associated with chartered commercial banks. However, common usage has increasingly conformed to more recent versions of Article 3, where check means any or all of these negotiable instruments.

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