Banks are not authorised to accept stop payment requests unless such requests are given with specific information setting out the reasons for requesting a stop payment.
A buyer has written and delivered a cheque to a seller of goods. The goods are not delivered on the agreed date. The seller refuses to take the buyer’s calls. The buyer hears rumours that the seller may have closed business and left town. Does the buyer have a right to stop payment of the cheque? Yes, provided the requirements below are satisfied.
The Banking Law of Oman issued by RD 11/2000 (the “Banking Law”) and Circular no BOD/CBS/CB/2002/308 issued by the Central Bank of Oman (the “CBO Circular”) permits a drawer of a cheque to instruct a bank not to honour a cheque provided the bank: (a)?has a reasonable time to action the request; (b)?has been requested in writing or verbally to stop payment; and (c)?is advised of the reasons for the stop payment request.
As to what constitutes a “reasonable time” for a bank depends on a bank’s systems, policies and the circumstances of the request.
The last requirement is necessary because the CBO circular states that banks are not authorised to accept stop payment requests unless such requests are given with specific information setting out the reasons for requesting a stop payment. If a verbal request has been given, then this should be confirmed in writing by the customer because the Banking Law states verbal requests are only valid for 10 days. Written requests are valid for six months.
Insufficient funds
Another scenario to consider is, say a manufacturer who provides a supplier with a post-dated cheque to cover an amount payable at the end of a billing period. However, at the time of writing the cheque, the manufacturer has insufficient funds in its current account because the manufacturer is relying on payments due from debtors but these amounts are not paid by the date the cheque is due to be presented. The manufacturer gives notice to the bank to stop payment because payments due by debtors have not been received. The supplier then sues the manufacturer. The manufacturer has been advised that the cheque has been returned by the bank to the supplier and endorsed “insufficient funds”. Has the bank endorsed the cheque correctly as opposed to an endorsement “refer to drawer”? Yes, because the Commercial Code of Oman issued by RD 55/90 prohibits a drawer from writing a cheque if there are insufficient funds in the account and a bank’s general terms provide that the bank is entitled not to honour cheques if there are insufficient funds in a customer’s account. If this were not the case, then customers writing cheques could issue stop payment requests when they do not have funds in their account to pay and accordingly avoid civil and criminal liabilities for a dishonoured cheque. What the manufacturer should have done is to contact the supplier and request the supplier not to present the cheque due to non-payment by its debtors.
It is common practice for finance companies in providing vehicle finance to request a customer to provide post-dated cheques as security for future payments due. Payment is usually effected by direct debit and the relevant post-dated “security cheques” are returned to the customer. If the finance company presents a cheque because payment has not been made by the customer and the cheque is returned and endorsed “insufficient funds”, then it is unlikely that the Omani Courts will consider it to be a criminal offence.
The reason is that if the post-dated cheques are issued as “security cheques” for a customer’s repayment obligations and not as an instrument through which the repayment is intended to be made, then it is unlikely the Omani Court will entertain any criminal proceedings for dishonourment of a post-dated cheque. The Magistrates Court and the Appeal Court in Oman have in the past held that where a cheque has been issued by way of a guarantee/security for payment to be otherwise made by the drawer directly, the dishonourment of any such cheque on its presentation will not constitute a criminal offence.