Professional Documents
Culture Documents
Bashar H. Malkawi*
I. Introduction
can be lost or stolen.1 The purpose of the law of negotiable instruments is to facilitate
transactions by using cash substitutes. Cash substitutes incorporate checks, drafts, and
promissory notes. However, checks are the most commonly used form as a payment
system. In 2006, for example, the total number of check transactions in Jordan was
109319.2 In comparison, checks were used in 42.5 billion transactions in the U.S.3
Therefore, the article will concentrate on the regulatory framework of checks in Jordan
certain formalities for checks. 4 In addition, recent court decisions emphasize these
formalities and act as gap fillers in cases which the law does not address. The law as well
as court decisions form coherent body that governs bank's practice. However, banks in
Jordan practice in a manner not in line with the letter of the law and court decisions. The
practice by banks creates law-practice discrepancy and de facto pattern different from
what the law and court decisions say. Practice of banks can be considered as informal
* Department of Law, Yarmouk University, LL.B. 1999; James E. Rogers College of Law, University of
Arizona, LL.M. 2001; Washington College of Law, American University, S.J.D. 2005.
1
See Geva, From Commodity to Currency in Ancient History-on Commerce, Tyranny, and the Modern
Law of Money, 25 Osgoode Hall L.J. 115, 130 (1987).
2
See Central Bank of Jordan, Yearly Statistics Series-Check Clearing, available at
<http://www.cbj.gov.jo/uploads/si_15.xls> (last visited November 10, 2009).
3
See Geoffrey R. Gerdes & Jack K. Walton II, The Use of Checks and Other Non-cash Payment
Instruments in the United States, 88 Fed. Res. Bull. 360, 360 (2002).
4
The terms "commercial papers" and "negotiable instruments" can be used interchangeably. See Ronald J.
Mann, Searching for Negotiability in Payment and Credit Systems, 44 UCLA L. Rev. 951, 983 (1997) (the
term "commercial paper" generically describes all types of commercial negotiable instruments-promissory
notes, drafts, checks and certificates of deposit). See also William H. Lawrence, Diagramming Commercial
Paper Transactions, 52 Ohio St. L.J. 267, 271 (1991).
1
amendment to the law. The best example for law-practice discrepancy is the case of
contradictory terms in checks, especially as they relate to use of words and numbers.
The following sections analyze contradictory terms in checks as a matter of law and
practice. The starting section provides discussion of the legal framework governing
checks. The article then moves to analyze the law as pertains to formalities in checks and
a recent court decision regarding contradictory terms in checks. The article, finally,
terms.
A check is a three party instrument. The drawer calls upon a drawee to pay to the
order of a named payee or to the bearer of the instrument an indicated sum of money.5 A
check is a demand instrument. The check can be presented to the drawee bank
immediately. Thus, the holder of a check can exercise substantial leverage over the
debtor since it is due and payable at execution and full payment can be demanded at any
time.6
The law does not differentiate between ordinary checks, cashier's checks, teller's
checks, and traveler's checks.7 The law treats these types as checks without distinction.
5
See Jordanian Code of Commerce No. 12 of 1966, art. 123.c (1966).
6
Such leverage, however, is not possible with instruments payable at a definite time such as promissory
notes or bills of exchange. Time instruments are not due until the date specified in the note, and demand for
payment cannot be made until that date arrives. See Kurt Eggert, Held up in Due Course: Codification and
the Victory of Form over Intent in Negotiable Instrument Law, 35 Creighton L. Rev. 363, 375, 377-389
(2002).
7
A cashier's check is one issued by a bank, and sold to its customer to be payable to a third party, while a
teller's check is drawn by a bank on another bank. A traveler's check is an instrument issued by banks and
non-banks that is payable to the order of the purchaser and is payable on demand. See Alex Y. Lieberman,
Checking in and Cashing out: Cashier's Check Fraud, Depository Liability and Proposed Solutions, 12 N.C.
Banking Inst. 353, 356 (2008). See Gregory E. Maggs, Determining the Rights and Liabilities of the
Remitter of a Negotiable Instrument: A Theory Applied to Some Unsettled Questions, 36 B.C. L. Rev 619
(1995). See also Henry H. Perritt, Jr., Legal and Technological Infrastructure for Electronic Payment
Systems, 22 Rutgers Computer & Tech. L.J. 1, 10-13 (1996).
2
Cashier's checks and teller's checks are classified as bank checks and differ from ordinary
or personal checks. Unlike the drawer of an ordinary check, the purchaser of a cashier's
check or teller's check may not be able to require the bank to stop payment.8
Additionally, since the cashier's check or teller's check is drawn by a bank on its own
funds, the possibility of dishonor due to insufficient funds is small. Hence, cashier's
For a writing to qualify as a check, it must comply with the requisites set forth in the
law. A failure to comply with these requisites renders the check invalid. 9 The requisites
of a valid check are related to the risks and administrative costs incurred by the payee.
The risks are measured by the likelihood that the payee will be paid the sum owed when
payment is due.
The word "check" must be inserted within the very text of the check and expressed in
the language used for writing it.10 In other words, the law requires that the item to be
called a "check." The need for inserting the word "check" seems to be historical. Even if
the word "check" is missing, the instrument can still be called a check and is considered
valid if all essential terms can be ascertained from the face of the instrument.
The check is an unconditional order to pay a determined sum.11 The instrument must
be free from any condition.12 However, there is a presumptive condition that, at the time
8
See Beane, Rights of Drawers, Banks, and Holders in Bank Checks and Other Cash Equivalents, 19 Tulsa
L.J. 612 (1984).
9
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 229. See also Court of Cassation,
Case No. 1731/2005, Adaleh Publications (2005).
10
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 228.a. See also Court of Cassation,
Case No. 258/88, Journal of Bar Association 328 (1990).
11
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 228.b.
3
of creating the instrument, the drawer has sufficient funds to cover the sum of the
check.13 As currently stands, the law does not provide further details. The law does not
specify what type of conditions invalidates a check. Will a reference in the writing that
the check is issued for payment of rent invalidates the instrument? It can be assumed that
another writing. For example, a check can be invalid if payment is contingent upon
receiving a functioning bicycle. Also, the check must call for payment of a fixed amount
The check must include the name of drawee, place of payment, and date of
place of payment, it is the place indicated beside the name of the drawee or the place of
the main establishment of the drawee. Date of issuing the check plays an important role
in determining the capacity of the drawer and commencing of the prescription period.17
The check must be signed by the drawer.18 Any symbol can be used to sign. The purpose
12
See Court of Cassation, Case No. 153/87, Journal of Bar Association 1028 (1988) (The check is not
considered a negotiable instrument if contained a condition that it would be paid if the land is sold). See
also Court of Cassation, Case No. 1785/2006, Adaleh Publications (2006).
13
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 231.a.
14
Id. art. 228.b.
15
Id. art. 228.c, d & e.
16
Id. art. 230. See also Arthur Lewis, Banking Law and Practice 155 (1998).
17
Prescription is a mode of barring of actions as a result of inaction for a period of time. Prescription is not
merely a mechanism for the release of debts; rather, it is a mode of extinction of claims. See Mahir Jalili,
Time Bar Clauses in Saudi Arabian Contracts, 13 Int'l Construction L. Rev. 488, 490-91 (1996). See also
Reinhard Zimmermann, Comparative Foundations of the Law on Set-Off and Prescription 76 (2002).
18
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 228.f.
4
B. Parties to a Check
In a check, the drawer calls upon the drawee to pay a fixed amount of money. 19
While the drawee has primary liability for payment, the liability of the drawer of a check
is secondary. Once a check is accepted, the drawer is discharged. The beneficiary is the
party to whom a check is issued. The check may be made to a specific person or to the
bearer.20 The check may be made also to the order of the drawer himself or for a third
party's account.
The drawee is called upon to payment the amount due on the check.21 Hence, the
drawee is not party to the check until the drawee accept the obligation. Failure by the
drawee to accept the check may give rise to the drawee being liable to the drawer to
C. Endorsement
the instrument to an entity who becomes a holder. Negotiation of a bearer check requires
deposited into a bank, the payee will have to endorse the check so that it can be
19
Id. art. 123.
20
Id. art. 233.
21
Id. art. 230.
22
See James E. Byrne, Negotiation in Letter of Credit Practice and Law: The Evolution of the Doctrine, 42
Tex. Int'l L.J. 561, 563-564 (2007).
23
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 239. See Court of Cassation, Case
No. 4179/2005, Adaleh Publications (2006).
5
Check can be transferable by endorsement through drawer's notation on the back of
the check. Under the law, any person to whom a check is issued can negotiate it. There
entitles the endorsee to claim under the check as if it were payable directly to him.
and just consist of a signature.26 A blank endorsement can convert a check into bearer
check. An endorsement can be also a "special endorsement" which specifies the person to
whom order the check is payable and requires that person's endorsement to enable further
negotiation of the instrument. Thus, a blank endorsement can be converted into a special
paid.
"for deposit."27 In this case, there can be no further negotiation and the check enters into
the bank collection process. A way to increase the value of the instrument is by an
the guarantor only when the check after being presented was not honored.
24
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 144.
25
Id. art. 240.
26
Id.
27
Id. art. 148. See Court of Cassation, Case No. 601/1988, Journal of Bar Association (1988).
28
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 149.
6
D. Presentment and Payment
made upon a drawee to pay the check that has become due. The check collection process
is not instantaneous. In most cases, the payee presents the check directly to the payor
bank for payment or the payee will deposit the check at another bank for collection which
will forward the check, usually through intermediary banks, to the payor bank. The bank
will review the signature(s) and examine the check for alterations or other indication of
fraud. The depositary bank will require the payee to indorse the check and that
endorsement will trigger the collection process. Since checks in fact are paid, each
collecting bank in the chain gives provisional credit for the amount of the check to its
predecessor in the chain as the check moves toward the payor bank.30 Then, in the
unlikely event that the payor bank dishonors the check, the credits can be reversed.
In the case is presented for payment before the date indicated as the date of issue, it
is payable on the day of presentation. Once payment is made, the drawer and drawee are
discharged. If the check, presented in due time, is not paid, then the payee can sue the
drawer, endorser, and other obligees. 31 The payee can establish his case for recovery by
simply producing the check and establishing the authenticity of the drawer's signature.
Once the case is substantiated, the payee is entitled to recover unless the drawer
establishes a defense. In this case, the payee can recover the unpaid amount of the check,
29
Id. art. 245. See Court of Cassation, Case No. 2266/2001, Adaleh Publications (2001).
30
This practice is characteristic of the U.S. check collection system. It is reflected in the rules of article 4 of
the U.C.C concerning the entry of provisional settlements as checks are forwarded for collection. See
William F. Savino and David S. Widenor, Commercial Law, 57 Syracuse L. Rev. 837, 856 (2007).
31
See Jordanian Code of Commerce No. 12 of 1966, supra note 5, art. 260.
7
III. Formalism and Practice: A Dissonance
The largest volume of negotiable instruments handled by banks is checks. Checks are
Some of legal requirements for a check can be outdated in the digital age. In practice,
banks ignore some formalities as a result of the volume of paper involved. However,
One area of divergence between formalism and practice is contradictory terms. The
law in Jordan does not provide specific provisions that address for example the case
whereby typewritten terms on the check differ from printed terms or numbers. In
comparison, in the United States, the Uniform Commercial Code (UCC) reconciled
contradictory terms. For example, the UCC provides that typewritten terms prevail over
printed terms and handwritten terms over both. Additionally, words prevail over
numbers. 33 Thus, law in the United States expressly attempts to reconcile the difference
caused by contradictory terms. In Jordan, courts have stepped in to fill the gap that exists
in the law. However, banks still do not follow courts' decisions and rather follow their
Jordan with regard to contradictory terms in checks is illustrated in the following case.
32
Jordan adopted an electronic collection for checks. The purpose of this system is to eliminate the physical
movement of paper. Also, the electronic collection of checks is intended to speed up the check collection
process and to expedite the availability of funds to depositors. The depository bank, instead of physically
sending a check for collection, it simply forwards a computerized image. See Jordan Starts the System of
Electronic Collection of Checks, Vol. 27 Banks in Jordan Magazine 34 (February 2008).
33
See U.C.C § 3-114 (2005).
8
A. The Case
On February 30, 2001, the drawer executed a check to Waleed Al-Khateeb, the
words.34 However, the amount of the check was Jordanian Dinar 7578 (equivalent of US
$10,695) in numbers. Later on, Waleed presented the check for payment to the Housing
Bank for Trade and Finance. The Housing Bank for Trade and Finance refused to accept
the check because of the difference between words and numbers. Waleed filed suit in
Amman Court of First Instance on June 13, 2001 against the drawer and the Housing
Bank for Trade and Finance.35 The Court of First Instance rules in favor of Waleed.36 The
Court of Appeals reversed. The court reasoned that the Instructions of the Central Bank
No. 23 of 1971 and their amendments permit bank to refuse to accept a check for
irregularities. Also, the Court of Appeals based its decision, in part, on Egyptian
jurisprudence.
The Court of Cassation rejected the argument made by the Court of Appeals. The
Court of Cassation stated that the Instructions of the Central Bank No. 23 of 1971 and
their amendments apply to relationships among banks and do not address the
34
See Court of Cassation, Case No. 4010/2004, Adaleh Publications (March 30, 2005).
35
The Judiciary branch in Jordan is divided into three categories: regular courts, religious courts, and
special courts. Regular courts, Nizamiyya, have jurisdiction in all matters, including trade. Trade cases, if
they are within JD3,000 value limit, which is updated from time to time, could be heard before Courts of
Peace, akin to small claims courts in the U.S. Trade cases could also be heard before Courts of First
Instance, Courts of Appeal, and Court of Cassation which stands at the apex of the judiciary. Currently
there are 73 courts in Jordan. The Court of Cassation decides on matters of law or procedure. It could
affirm the decision of the Court of Appeal, or remand it for further reconsideration. See Jordan CONST.
art. 99. See also Law of Courts of Peace No. 15, art. 3.1, Official Gazette No. 1102 (March 16, 1952) as
amended by law No. 13 of 2001, Official Gazette No. 4480 (March 3, 2001).
36
Id.
9
relationships between banks and their customers.37 Therefore, the Court of Appeals erred
The Court of Cassation stated that the check in question is unclear and ambiguous as
there is difference between words and numbers. The Court found that words prevail over
numbers on the basis of the presumption that by writing out numbers, more care has been
taken to make sure the right term has been used.38 The Court of Cassation drew a parallel
to earlier precedents to support its position that words prevail over numbers. 39
B. Analysis
The law in Jordan does not address the case whereby the amount of the check as
written out is different from the amount stated in numbers. The practices of banks varied
when faced a check that has conflicting terms. Some banks refuse to accept the check if
the amount written in words is different from the amount written numbers.40 So, banks
send such a check to the drawer for correction. Other banks accept a check whereby
words differ from numbers. However, in the latter case, these banks pay the lesser
amount.41 For example, suppose a check is made for Jordanian Dinar 22000 in numbers
and for Jordanian Dinar 2200 in words. In this case, banks would pay the Jordanian Dinar
2200 since it is obviously the lesser amount. Also, if the check is made for Jordanian
Dinar 2200 in numbers and for Jordanian Dinar 22000 in words, banks would pay the
Jordanian Dinar 2200 since it is the lesser amount. In sum, banks would pay the lesser
37
Id.
38
Id.
39
See Court of Cassation, Case No. 46/94, Journal of Bar Association 1789 (1994) (the check must be free
of any ambiguity. Therefore, there is an ambiguity in a check drawn for US $60,000 in writing and
Jordanian Dinar 60,000 in numbers).
40
See Judicial Activism in Checks, Vol. 24 Banks in Jordan Magazine 44 (November 2005).
41
Id.
10
The Court of Cassation saw in Waleed's case an opportunity to settle the question of
There is no clear text in the law that would guide the Court in making its decision. Article
3 of the Code of Commerce provides the Court with the authority to resort to judicial
case of contradictory terms words prevail over numbers. In writing out numbers, more
care has been taken to make sure the right term has been used. The Court of Cassation
could simply have referred to the practice and custom of banks. The notion of
interpreting terms by referring to custom or practice is not alien to Jordanian law. In order
to achieve uniformity and consistency with respect to checks law, the Court entertained a
discussion of why words should prevail over numbers. The Court tried to harmonize
Thus, the test that emerged from Waleed's case is instructive. The Court did not, for
terms for the lesser amount, larger amount, pay according to words, or pay according to
numbers. In fact, the Court's test is clear. If contradictory terms exist in a check, then
In so ruling, the Court of Cassation could have referred to the laws of other countries
such as the United States. In the United States, there is an explicit provision concerning
the issue of contradictory terms. 42 However, the Court of Cassation did not refer to
foreign laws and jurisprudence as the Court of Appeals did. The reason for the approach
adopted by the Court could be attributed to the fact that Jordanian law does not create
42
See U.C.C § 3-114 (2005), supra note 29.
11
significant externalities. Many in Jordan would resist the temptation to apply foreign laws
into domestic legal issues. Domestic courts should address only local matters. Foreign
laws are written for different environments or circumstances that do not necessarily fit
well in Jordan. For the moment, however, the Court of Cassation believed that local
C. Legislative Solutions
The decisions of the Court of Cassation make it clear for banks that in case of
contradictory terms in check, words prevail over numbers. However, banks in Jordan still
follow their own practices and ignore decisions of the Court of Cassation. In case of
contradictory terms, banks refuse to accept the check or pay the lesser amount.43 Banks
reason that in such a case, they assume bad faith on the part of drawer and desire to avoid
being entangled in litigation. The reasoning of banks is all but flawed. Although
conflicting terms of words and numbers can be attributed to bad faith on the part of the
Reforming the law regarding contradictory terms seems the viable solution. Any
sound legislative solution must address the customer right to know, before an account is
opened and periodically after it is opened, the general policy of the institution with regard
to checks. Further, the customer needs to be informed of the bank's decision to place a
hold on any specific item. The law must also restrict the opportunity for banks to vary
their practices by providing explicitly that words should over numbers in case of
43
Telephone Interview with Khaled Badawi, Branch Manager, Amman-Arab Bank (Nov. 11, 2009).
12
The amendment of law with regard to conflicting terms will help mitigate the
provide certainty for payees in the face of divergent court decisions and bank practices.
Conclusion
The bulk of payments in the Jordanian economy are made by checks. Currency forms
only a small portion of the monetary system. In a sense, therefore, checks are considered
currency substitutes. The viability of using checks in the payment system depends on the
clarity and consistency of the law, courts' decisions, and banks' practices.
The law, as currently stands, fails to provide comprehensive rules for checks. For
instance, although they were in use, there is no mention in the law of cashier's checks or
teller's checks. The uncertainty with regard to contradictory terms in checks not only
threatens to jeopardize the viability of checks as an integral part of the current payment
The law on negotiable instruments drafted more than sixty years ago and is in need
of revision. The law should modernize language and take into account technological
conflicting lines of case authority. In sum, the law should promote simplicity, clarity, and
uniformity. To achieve these goals, the law could have rules governing virtually all of the
commonly arising problems. Alternatively, the law could contain rules general and
44
See Ali Shaheen, Returned Checks in Jordan and the Role of Monetary Policy and Banking Management
in Addressing the Issue, Vol. 6.2 Irbid Journal for Research and Studies 65, 70 (2003) (the number of
returned checks in Jordan is increasing). See The Central Bank Issues Instructions of the Returned Checks
Unit, Vol. 24 Banks in Jordan Magazine 16-18 (July 2005) (On August 4, 2005, the Central Bank of Jordan
issued the Instruction for the Unit of Returned Checks in order to minimize the phenomenon of returned
checks). See also Isam Qadamani, Bounced Checks, Al Ra'I Newspaper (April 20, 2008) (the percentage of
bounced checks in Jordan reached 76%).
13
This generality could be achieved by incorporating an element of judicial discretion into
the rules. Without this flexibility a court would not be able to stretch the rules to
Courts' decisions construing contradictory terms in checks are clear. For example,
words prevail over numbers whenever there is a conflict between them. These decisions
provide a sound rationale; by writing out numbers, more care has been taken to make sure
the right term has been used. At first blush, these decisions seem to solve the matter.
However, the matter is far from reconcilable and even raises bigger issues.
Courts must explicitly state that its interpretation is a general one and is not intended
to be limited to the specific facts of that case. Courts deciding cases must hold that even
if banks prove its conformity with local practice, banks will have to follow courts'
jurisprudence. When the law has been in force for a time, has been interpreted in a series
of judicial decisions, these decisions themselves become part of the law complex: the
meaning of the law must now be sought not merely in the legal text but in the law and the
The failure of banks to embrace courts' decisions should be taken not as proof of
satisfaction with the present law but as a clear demonstration of disregard to court's
payment systems law will continue to be an elusive goal. Until the government acts,
14