Understanding how cheques are issued in France: the basics

Despite the proliferation of electronic means of payment, cheques still play a significant role in everyday transactions in France. However, although cheques may seem simple to use, they are subject to precise legal rules, and failure to understand them can lead to difficulties and even disputes. For a broader understanding of the rules governing day-to-day use and banking obligations, including how to pay and be paid by chequeIn order to do this, it is essential to master the basics: how to issue a cheque correctly and, above all, the essential concept of "funds in hand".

This article aims to explain the basics of using cheques safely. We'll look at what makes up a cheque, the information it must contain, and we'll take a closer look at the provision of funds, a sine qua non condition for the validity of your payment.

What is a cheque and who is involved?

In the legal sense, a cheque is a written document in which a person, called the shootergives the order to a specific establishment, the drawnto pay a specified sum of money to another person, the beneficiaryor at its behest. It is therefore an instrument that brings together three main players.

Le shooterWhen you issue a cheque from your bank account, you are the payer. You give the payment order.

Le drawn can only be an institution authorised to hold funds and manage accounts from which cheques can be drawn. In practice, this is almost always your bank (or a similar body such as La Banque Postale or the French Treasury in certain specific cases). Article L.131-4 of the French Monetary and Financial Code lists these entities in detail. The bank receives the order to pay via the cheque you have written.

Finally, the beneficiary is the person or company to whom the payment is made. This may be a third party (a shopkeeper, a craftsman, a friend, etc.) or even the drawer him/herself (this is known as a cheque "made payable to myself", often used to withdraw cash from an ATM, although this practice is becoming increasingly rare).

Filling in a cheque correctly: the essential details

For a cheque to be considered valid under French law, it must contain a certain number of mandatory details. The absence of any of these may deprive it of its legal status as a cheque, although it may sometimes be reclassified as another type of document (such as an acknowledgement of debt, for example).

Information required for a cheque to be valid

The following information must appear on the security, in accordance with Articles L.131-2 et seq. of the French Monetary and Financial Code:

1. The "cheque" designation : The word "cheque" must be inserted in the text of the instrument itself, in the language in which it was written. This explicit reference confirms the nature of the instrument.
2. An outright order to pay a specific sum: The cheque is an unconditional mandate to pay. No suspensive or resolutory clause may be attached to it. The amount must be clearly indicated. It is customary to write the amount in figures and in words. If there is a difference between the two, the sum written out in full prevails, as specified in article L.131-10 of the French Monetary and Financial Code. If the sum is indicated several times in figures or several times in words with different amounts, the lower sum is used.
3. The name of the drawer : This is the name of the bank (or similar institution) which is to pay. This name is pre-printed on the cheque forms supplied by the banks.
4. Indication of the place where payment is to be made: Generally, this is the address of the bank branch where the drawer's account is held. This location is important, particularly for determining the competent court in the event of a dispute. If no place is specified, the law provides for suppletive rules: it will be the place designated next to the name of the drawee, or failing that, the place of the drawee's principal place of business (article L.131-3 of the French Monetary and Financial Code).
5. The date and place of issue of the cheque: The date is essential because it marks the starting point for the time limits for presentation for payment and prescription. It is also on this date (or more precisely, on the date of actual issue, i.e. delivery to the beneficiary) that the funds must exist and the capacity of the drawer is assessed. An undated cheque is not valid. Beware of post-dated cheques (on which a future date is written): this practice, although common in an attempt to defer cashing, is legally ineffective and dangerous. Article L.131-31 of the French Monetary and Financial Code stipulates that cheques are payable as follows on sight. A post-dated cheque can therefore be presented for collection as soon as it is received by the beneficiary, even if the date entered is later. If there are insufficient funds at that time, the drawer is exposed to the consequences of an NSF cheque. The place where the cheque was created must also be indicated; otherwise, the cheque is presumed to have been created at the place designated next to the drawer's name.
6. The drawer's handwritten signature : It is the element that materialises the payment order. It must be handwritten (article L.131-19 does not allow the use of non-handwritten procedures for the drawer's signature, unlike other signatures on bills of exchange) and conform to the specimen deposited with the bank when the account was opened. If the signature does not conform, the bank may refuse payment. An unsigned cheque has no value, even if the rest is in the account holder's handwriting.

The consequences of missing information

As mentioned above, article L.131-3 of the French Monetary and Financial Code is clear: the absence of any of these compulsory details (except for the place of payment and the place of creation, where the law can make up for the absence) means that the document loses its status as a cheque. It will not be null and void per se, but it will not be able to produce the specific effects attached to a cheque (transfer of funds, recourse to the courts, etc.). Depending on how it is drafted, it may be considered to be a simple acknowledgement of debt or prima facie evidence in writing.

What you should never write on a cheque

Conversely, certain statements are prohibited on cheques because they are incompatible with their nature as simple and immediate payment instruments. Article L.131-5 of the French Monetary and Financial Code states, for example, that any mention ofacceptance by the drawee (the bank) is deemed to be unwritten. Unlike bills of exchange, cheques are not accepted.

Similarly, a stipulation of interest inserted in the cheque would also be deemed unwritten (article L.131-8). The cheque records an amount to be paid, full stop.

Finally, any condition affecting the payment is prohibited (article L.131-31). If you write "payable if..." or "payable after...", these conditions will be ignored. The cheque remains payable immediately ("at sight").

It is important to note that the presence of a prohibited wording does not cancel the cheque itself. The law simply considers that the wording does not exist.

The provision: the essential core of the cheque

Let's turn now to what is undoubtedly the most essential point, and one that is often a source of problems: the provision of funds. Without sufficient funds, issuing a cheque can have serious consequences, such as a bank ban.

What is a provision?

The provision is quite simply the sum of money that the drawer (you) must have available in the bank account with the drawee (your bank) to cover the amount of the cheque issued. Article L.131-4 of the French Monetary and Financial Code requires the drawer to have funds on hand with the drawee. This is a fundamental obligation. Think of a cheque as a car: the provision is the essential fuel it needs to run and reach its destination (payment).

The qualities required of the provision

To be valid, the provision must not only exist, it must also meet three cumulative conditions at the time the cheque is issued (i.e. given to the beneficiary):

1. Prerequisite: The funds must be available when the cheque is issued. It is not enough to think that it will arrive on the account later. The law (article L.131-4) requires this to be the case.
2. Sufficient: The amount available in the account must be at least equal to the amount shown on the cheque. If the funds are less than this, the cheque is said to be partially funded (which may result in the cheque being rejected for insufficient funds).
3. Available on : This is undoubtedly the most technical quality. The sum must be immediately usable by the drawer by means of the cheque. This implies several things:
   • The drawer's claim on his bank must be some (not just a possibility), liquid (amount known and quantified) and due (not subject to a term or condition).
   • There must be an express or tacit agreement between the drawer and the bank authorising the drawer to use the funds by cheque. The mere handing over of a chequebook is generally equivalent to tacit agreement for the sums credited to the account.
   • What about authorised overdrafts or cash facilities? A confirmed overdraft that has not been used up constitutes an available provision. The banker who has granted an overdraft is committed to the agreed limit and cannot refuse to pay the cheques issued under it without incurring liability (unless the credit is regularly revoked, in accordance with article L.313-12 of the French Monetary and Financial Code). A simple one-off tolerance of overdraft by the bank is more ambiguous and does not guarantee payment of subsequent cheques.

Irrevocability of the provision

Once the cheque has been issued (i.e. as soon as you have relinquished it to the beneficiary), the corresponding provision is "reserved" to the beneficiary. This is known as the transfer of ownership of the provision (article L.131-20 of the French Monetary and Financial Code).

The major consequence is theirrevocability of the provision :

• The drawer is no longer entitled to the funds required to pay for the cheque issued. Withdrawing these funds (by means of another cheque, a cash withdrawal, a transfer, etc.) after having issued the cheque constitutes a fault, or even a residual criminal offence (article L.163-2 of the French Monetary and Financial Code).
• The drawer may not stop payment of the cheque in an attempt to "block" it, except in the very specific cases listed exhaustively by law (loss, theft, fraudulent use, bankruptcy proceedings against the bearer - article L.131-35). Making a stop payment outside these cases is illegal and may also result in penalties.

This irrevocability is intended to guarantee the beneficiary that he or she will be paid if the provision existed at the outset.

Who must prove the existence of the advance?

The law is clear on this point: it is up to the shooter prove that they had the necessary funds when the cheque was issued (article L.131-4, paragraph 3 of the French Monetary and Financial Code). In the event of a dispute, if the drawer claims that the funds were available but that the bank made an error, it is up to the drawer to provide evidence to prove this.

Mastering the basic rules for issuing and depositing funds is the first step to using cheques wisely and avoiding the inconvenience of having them rejected for lack of information or, more seriously, for lack of funds. To find out more about the repercussions and specific steps to be taken in the event of a cheque being rejected, click here. bounced cheques and bank bansSee our dedicated article. For more complex problems, such as a lost, stolen, forged or unpaid chequeThere are also specific recourses to be aware of.

Advice tailored to your situation could save you time and resources. Contact us to find out more about our expertise in banking and financial law.

Sources

• Monetary and Financial Code (in particular Book I, Title III, Chapter I)