Problems Associated With Drawing Check Without Having Sufficient Cover Under The Ethiopian Legal System: A Focus On The Practice In The Commercial Bank Of Ethiopia

Abstract

Check is a negotiable instrument which is widely used replacing cash. Drawees honor checks and effect payment if it, inter alia, fulfills the formality requirement that is provided under the law and the drawer has sufficient cover during issuing/presenting the check in his/her account. Be that as it may, a drawer may not have sufficient cover while a payee/holder presents a check for payment. In this regard, while the Geneva Uniform Law of check offers a right for Contracting States to set the consequence and remedies of such act under their national law, the French and UK check laws vividly provides an obligation on drawees to honor checks which are drawn without having sufficient cover, and effect payment to the extent of the fund available in the drawer’s account. Additionally, they also criminalize the act of drawing a check without having sufficient cover. This research, accordingly, investigates the legal and practical problems associated with drawing check without having sufficient cover under the Ethiopian legal system, with a specific focus on the practice in the commercial bank of Ethiopia (here in after CBE). While the primary sources of data is acquired from key informant interviewees i.e. employees and managers of East, West, North, South and head office of the CBE, senior legal expert of the NBE and commercial bench judge of the FFIC, secondary sources of data is acquired from different published and unpublished sources. The finding of the research is that the Licensing and Check Account Operation Directive without incorporating relevant provisions that order drawees to honor a check to the extent of the fund available in the drawer’s account as per art. 859 (3) and (4) of the commercial code, it has negatively affected rights of payees and holders of check of the CBE through deterring them from making use of an already accessible fund and through making them to pay a court fee and engage in a litigation on an already admitted and destined fund. Moreover, it has also forced them to submit their case to a court of a higher jurisdiction, and as such compromised their appeal right which the country shall consider forthwith.