Accordingly, the legal issue does not lie in the bearer cheque being «unlawful» or having less evidentiary value, but rather in the fact that its method of circulation makes possession highly significant and requires the drawer and holder to exercise greater caution compared with a cheque issued in the name of a specified beneficiary or subject to restrictions that limit its circulation or cash payment.
When Is a Cheque Considered a Bearer Cheque?
Article 477 of Trade Law No. 17 of 1999 provides that a cheque may be payable to bearer.
A cheque is also considered payable to bearer where:
- It is made payable to a named person with the addition of the words «or bearer» or words having the same meaning.
- No beneficiary is named at all.
The distinctive nature of this form appears in Article 486, which provides that a bearer cheque is transferred merely by delivery, without the need for endorsement.
Why Does a Bearer Cheque Present Greater Risk?
The principal risk is that transfer of possession may result in transfer of the negotiable instruments position to another holder without any chain of endorsements showing how the cheque reached them.
Article 493 also establishes an important rule: where a person loses possession of a bearer cheque, the person to whom the cheque has passed is not required to surrender it unless it is established that they acquired it in bad faith or committed gross negligence in obtaining it.
This means that merely proving that the cheque belonged to a person who later lost it is not always sufficient to recover it from any subsequent holder, particularly where that holder acted in good faith and did not commit gross negligence when acquiring it.
Loss of the Cheque Does Not Mean Permanent Loss of the Right
Despite the risks associated with bearer cheques, the Trade Law establishes a special system to protect the owner in the event of loss or destruction.
Pursuant to Article 512, the owner of a bearer cheque may object to payment before the drawee bank, provided that the objection contains the particulars necessary to identify the cheque and the circumstances of its loss or destruction.
Once the bank receives the objection, it must refrain from paying the holder of the cheque and set aside the funds available for payment until the dispute concerning the cheque is resolved.
The Law also requires publication of the particulars of the lost or destroyed cheque in a daily newspaper and provides for invalidity of transactions concerning it after the date of publication, subject to the conditions of the provision.
What Happens If a New Holder of the Lost Cheque Appears?
Article 513 regulates this situation.
If a person presents the cheque to the bank after an objection based on loss has been submitted, that holder may contest the objection. The bank must then record the existence of the objection and notify the objecting party of the holder’s particulars.
The holder then notifies the objecting party by registered letter with acknowledgment of receipt, requiring them to bring an action to establish title to the cheque within thirty days.
If the action is not brought within that period, the holder may apply to the Judge of Urgent Matters to have the objection cancelled and shall thereafter be regarded, in relation to the bank, as the lawful owner of the cheque.
If the title action is brought, the bank may not pay the value of the cheque to either party except to the person who produces a final judgment establishing ownership or an approved amicable settlement between them.
What Happens If No Holder Appears After the Objection?
Under Article 514, if six months elapse from the date of the objection without anyone presenting the cheque and claiming its value, the objecting party may apply to the court for authorization to collect the amount of the cheque.
This period is entirely different from the period for presenting the cheque for payment and from the limitation period applicable to recourse actions, and these periods should therefore not be confused.
Article 540 Does Not Regulate a Certificate of Non-Payment
One common error is attributing the issue of a «certificate of non-payment within six months» to Article 540 of the Trade Law.
This is incorrect.
Article 540 appears within the general provisions governing negotiable instruments and regulates the manner in which a protest for non-acceptance or non-payment is drawn up in accordance with the rules prescribed by the Civil and Commercial Procedures Law.
Proof of the bank’s refusal to pay the cheque, however, is regulated directly by the recourse regime contained in the provisions specific to cheques, including Article 518, which permits non-payment and its reason to be established by a statement issued by the bank instead of a protest, subject to the conditions prescribed by law.
Time Limit for Presenting the Cheque for Payment
Article 504 – in its amended wording – provides that a cheque drawn in Egypt and payable in Egypt must be presented within six months from the date stated on it.
A cheque drawn outside Egypt and payable in Egypt must be presented within eight months.
These are commercial presentation periods and should not be equated with the limitation period for criminal proceedings or treated as the sole period necessary «to preserve the criminal right».
Does the Holder Lose Their Right If the Cheque Is Presented After Six Months?
It is not that simple.
Article 506 provides that where a cheque is payable in Egypt, the drawee bank may not refuse payment if funds remain available, even where the presentation period has expired.
However, expiry of the presentation period may affect certain negotiable instruments rights of recourse against endorsers and other liable parties, and timely presentation therefore remains practically important.
Limitation of Cheque Actions Is Not Fifteen Years as a General Rule
Article 531 of the Trade Law regulates limitation periods for negotiable instruments actions arising from cheques and establishes specific periods that vary depending on the parties to the action.
Actions by the holder against the drawer, endorsers, and other parties liable for payment of the cheque are time-barred after six months from the date of presentation for payment or from expiry of the presentation period, depending on the circumstances regulated by the provision.
The holder’s action against the drawee bank is also time-barred after three years from the date of presentation for payment or from expiry of the presentation period.
The statement that «a civil action for the value of the cheque always remains available for fifteen years» is therefore an inaccurate generalization. An underlying action arising from the legal relationship for which the cheque was issued may be subject to a different limitation period, but that is distinct from the negotiable instruments action arising from the cheque itself.
Does the Beneficiary’s Knowledge That No Funds Exist Extinguish Their Right?
There is no general rule providing that the beneficiary’s prior knowledge that no funds are available automatically extinguishes legal protection or the right to claim payment.
A distinction must be drawn between the position of the drawer, whose conduct is criminalized where a cheque is issued without funds available for payment and the elements of Article 534 are satisfied, and the position of the holder.
Article 534 itself also penalizes any person who delivers to another a bearer cheque payable on demand while knowing that there are insufficient funds available for payment or that the cheque is not payable.
Accordingly, knowledge must be assessed in light of the person’s capacity, role, and the conduct attributed to them, rather than treated as a general ground for extinguishing rights.
The Risk of Transfer by Mere Delivery
A bearer cheque is transferred merely by delivery, which is the most important practical distinction between it and a nominative cheque capable of endorsement.
An endorsement written on a bearer cheque does not convert it into an order cheque; rather, it makes the endorser liable under the rules of recourse without altering the nature of the instrument, pursuant to Article 492.
Accordingly, placing a signature or endorsement on the back of a bearer cheque does not provide the same degree of control as issuing the cheque from the outset in the name of a specified beneficiary.
First Alternative: A Cheque Payable to a Specified Beneficiary
Issuing the cheque in the name of a specified person reduces the risks associated with its physical transfer merely by delivery.
However, it should be noted that a cheque payable to a named person remains, in principle, transferable by endorsement whether or not it contains an express order clause.
Accordingly, if the objective is to prevent transfer by endorsement, the appropriate legal restriction must be added rather than merely writing the beneficiary’s name.
Second Alternative: A Non-Transferable Cheque
Article 477 permits a cheque payable in Egypt to include the words «not transferable».
In such case, the cheque may only be paid to the beneficiary who received it subject to that restriction, in accordance with the provision.
Article 486 also regulates a cheque payable to a named person bearing the words «not to order» or other words having the same meaning, in which case it is not transferred by commercial endorsement but rather in accordance with the rules governing civil assignment of rights.
These mechanisms provide greater security where the drawer intends the value to reach a specified beneficiary and does not want the cheque to pass easily to third parties.
Third Alternative: A Crossed Cheque
Article 515 permits the drawer or holder to cross the cheque by placing two parallel lines on its face, and the crossing may be general or special.
Crossing restricts the methods by which the cheque may be paid; in the case of general crossing, the bank may only pay its value to another bank or to one of its customers, while special crossing identifies the bank through which payment is to be made pursuant to Article 516.
Accordingly, crossing reduces the risk of direct cash payment to an unidentified person, but it does not necessarily prevent all forms of transfer of rights in the cheque.
Fourth Alternative: A Cheque «For Credit to Account»
The Law provides a clearer means of preventing cash payment.
Pursuant to Article 517, the drawer or holder may place the words «for credit to account» or other words having the same meaning on the cheque.
In such case, the bank may not pay the value of the cheque in cash, and settlement must instead occur through crediting an account, bank transfer, or clearing.
This option provides an important practical effect because it leaves a clear banking trail for the transfer of value instead of delivering cash to the holder of the instrument.
Fifth Alternative: A Certified Cheque
Article 482 permits a cheque to be presented to the bank for certification.
Certification confirms the existence of funds available for payment with the bank on the date of certification, and the bank’s signature on the face of the cheque constitutes certification.
A certified cheque provides greater security in terms of verifying the existence of funds available for payment at the time of certification, but it does not by itself eliminate all risks of loss or transfer of possession. It may therefore be preferable to combine certification with issuance in the name of a specified beneficiary or with restrictions on the method of payment.
Is a Crossed Cheque Safer Than a Bearer Cheque?
Yes, in terms of the method of payment, but not because it eliminates the bearer nature of the cheque.
A cheque may be both payable to bearer and crossed at the same time. In such case, the rules governing transfer of bearer cheques remain applicable, while the bank becomes subject to the rules governing crossing when making payment.
Accordingly, the highest level of protection is not achieved through a single measure, but by selecting a combination of restrictions appropriate to the purpose of the transaction.
Ranking the Alternatives by Level of Control
If the objective is to reduce the risks of loss and payment to an unintended person, from a practical perspective it is preferable to consider:
- Not issuing the cheque to bearer in the first place where there is no genuine need for ease of transfer.
- Naming the beneficiary.
- Adding a restriction preventing or limiting transfer where the intention is to confine the right to a specific person.
- Crossing the cheque to restrict the method of payment.
- Adding the words «for credit to account» to prevent cash payment.
- Requesting certification of the cheque where the risk of insufficient funds is a concern.
What Should Be Done Immediately If a Bearer Cheque Is Lost?
- Notify the bank immediately and submit an objection based on loss containing the particulars required by Article 512.
- Identify the cheque number, value, and drawer’s name and any other particulars enabling its identification.
- Describe the circumstances of loss or destruction clearly.
- Take the publication measures required by law.
- Monitor whether another holder appears with the cheque.
- Bring the title action within the prescribed period where a dispute arises with a new holder pursuant to Article 513.
Prompt action is important because the legal significance attached to possession of a bearer cheque makes delay in taking loss-related measures more dangerous than in the case of certain nominative instruments.
Does the Law Need to Be Amended to Extend the Period for Obtaining a Certificate of Non-Payment?
A legislative proposal should not be based on this premise because Article 540 does not, in the first place, require obtaining a «certificate of non-payment within six months» in order to preserve criminal rights.
From a legislative perspective, if protection of bearer cheques is to be developed, the discussion should more accurately focus on matters such as strengthening identity verification of the person presenting the cheque for cash payment, increasing the use of account crediting, and developing traceable digital payment instruments, without confusing these issues with the periods governing presentation and negotiable instruments recourse.
Is the Best Solution an «Electronic Cheque»?
Moving toward more traceable digital payment methods may reduce certain risks associated with physical theft or undocumented transfer, but it creates different risks relating to account security, electronic authentication, and digital fraud.
Accordingly, selecting the safest payment method depends on the nature and value of the transaction, the parties involved, and the extent to which transferability, speed, or proof of the flow of funds is required.
Conclusion
A bearer cheque is a valid legal instrument, but it carries higher risks because it is transferred merely by delivery and because of the strong legal position of a bona fide holder. Nevertheless, its loss does not automatically result in loss of the underlying right, as the Trade Law regulates the owner’s objection, segregation of funds available for payment, title disputes, and authorization to collect the value after expiry of the prescribed period without any holder appearing.
A distinction must also be drawn between the period for presenting the cheque, limitation of negotiable instruments recourse actions, limitation of any underlying action arising from the basic legal relationship, and criminal liability, as each is governed by an independent legal regime.
From a practical perspective, where there is no genuine need for the cheque to circulate merely by delivery, the more conservative option is to issue it in the name of a specified beneficiary, restrict its transfer where necessary, use crossing or the «for credit to account» condition, and request certification where the objective is to ensure the availability of funds.