Payment by personal cheque not acceptable

The Court of Appeal has agreed with the High Court that a payment made by personal cheque is not acceptable payment until it has cleared.

This case1 involved the sale of farm property. The sale and purchase agreement required the purchaser to pay a deposit and included a specific clause providing that the vendor could not cancel the agreement for non-payment of the deposit without first giving the purchaser three working days' notice of intention to cancel and the purchaser failing within that time to pay. The agreement did not record an agreed method for payment of the deposit.

When the vendor issued notice of its intention to cancel the agreements for non-payment the purchaser paid the deposit by personal cheque into the vendor’s solicitor's trust account. After the notice expired, the vendor rejected the payment and purported to cancel the agreements, arguing that the purchaser’s personal cheque was not legal tender.

The purchaser argued that there was no requirement in the agreement for sale and purchase, in the vendor’s notice, or as a matter of commercial practice, for the deposit to be paid by bank cheque.

The High Court decided that the vendor was entitled to payment in cleared funds before expiry of the notice period. It was incompatible with the terms of the agreement that the vendor should have to wait beyond that period until a cheque was cleared, and there was no possibility that the purchaser’s personal cheque would be cleared within the notice period.

The Court of Appeal agreed with the High Court, noting that not only was payment by personal cheque not payment in cleared funds, but such payment would only constitute proper payment under an agreement for sale and purchase if the recipient had earlier agreed to payment being made by personal cheque or had accepted the personal cheque without objection.

1 Otago Station Estates Limited v Parker (CA 158/03, 10 June 2004)

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.