Can a bank decide to overdraw your account to honour a cheque?

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3 April 2019
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Hello,

I am trying to find out if a bank is in breach of contract if it overdraws your account rather than dishonoring a check and charging you a fee when you write a personal cheque.

For example, say you write a personal cheque for $25,000 and you have $2 in your account, does the bank have the choice to overdraw your account by $24,998 so that the cheque can be presented? Or are they in breach of contract?

I have tried to find the answer in the Cheques Act 1986 (Cth) but I can't find out who gets to make that decision. I have read that the bank can overdraw your account to present a cheque when you have insufficient funds ONLY if there are express or implied terms in your contract with the bank but I can't find the case law or legislation to back this up.

Thank you
Claire
 

Rob Legat - SBPL

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This is a contractual matter between you and your bank and falls under the terms of an informal credit arrangement (unless you have an overdraft account, or an arrangement to call funds from another account).

Each bank is different, and each relationship with their customers is different. Some will have a preset amount they’ll allow, others won’t allow it at all. In your example, I doubt that cheque would honour with some special intervention from a business relationship manager or higher; and even then only by special request form the customer (and some form of surety) unless the bank is assured payment is coming.

Also bear in mind the cost of a temporary overdraft account is likely to be a Lott smaller than a dishonoured cheque fee - never mind the headache with the payee of a cheque.
 
3 April 2019
4
0
1
This is a contractual matter between you and your bank and falls under the terms of an informal credit arrangement (unless you have an overdraft account, or an arrangement to call funds from another account).

Each bank is different, and each relationship with their customers is different. Some will have a preset amount they’ll allow, others won’t allow it at all. In your example, I doubt that cheque would honour with some special intervention from a business relationship manager or higher; and even then only by special request form the customer (and some form of surety) unless the bank is assured payment is coming.

Also bear in mind the cost of a temporary overdraft account is likely to be a Lott smaller than a dishonoured cheque fee - never mind the headache with the payee of a cheque.


Thank you Rob. That makes total sense. My question is....what law backs this up? I'm assuming terms of an informal credit arrangement is part of common law not legislation?
 

Rob Legat - SBPL

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A lot of credit law is contract based, and so is this aspect. It’s predominantly relegated to common law.
 
3 April 2019
4
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Thank you so much Rob. I have one final question. How do I go about sifting through common law to find a case that would help me back up a point that the contract between the bank and customer did not contain an implied term that a temporary overdraft account would automatically come into effect? What I mean is, if I want to try to prove that the bank has breached the contract by presenting a cheque that takes my account into overdraft without first informing me that it would happen and giving me the option to have the cheque bounce...how do I even search for such a case? Is there a website? Is there a place were common law on a particular topic is all grouped?
 

Rob Legat - SBPL

Lawyer
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16 February 2017
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Gold Coast, Queensland
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Your best bet is to find a law library in a university that will allow public access. The best way to research is through the published legal commentaries which specialise in particular topics - you'll be looking for "banking and finance" and "credit" predominantly. You won't get access to these via the web without paying a significant amount of money. Writing and maintaining the up to date commentary (without which, the publication is nigh on useless) is an intensive job for legal scholars and their efforts don't come cheaply.
 
3 April 2019
4
0
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Thank you so much Rob. I really appreciate that you took the time to help me! I have access to a university law library. Yay! Thanks again