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Malaysian Banking Law – Meaning of “Honouring a Cheque”
In banking law, “honouring a cheque” means that the bank accepts and pays the cheque according to the customer’s instructions.
When a customer writes a cheque, the customer is instructing the bank to pay a specified amount of money to the person named on the cheque (the payee). If the bank processes and pays the cheque correctly, the bank is said to have “honoured” the cheque.
For example, if Ali has RM10,000 in his current account and writes a cheque for RM2,000 to Ahmad, the bank should pay Ahmad the RM2,000 when the cheque is presented. Once the bank makes the payment, the cheque has been honoured.
The bank’s duty to honour cheques arises from the contractual banker-customer relationship. A bank must honour a cheque when:
  • the cheque is properly drawn;
  • the customer has sufficient funds;
  • there are no legal restrictions; and
  • the cheque complies with banking requirements.
If the bank refuses payment despite sufficient funds and a valid cheque, the bank may be liable for wrongful dishonour and breach of contract.
However, a bank may lawfully refuse to honour a cheque where:
  • there are insufficient funds;
  • the signature is forged;
  • the cheque is stale or expired;
  • there is a court order stopping payment;
  • the account has been closed; or
  • there is suspicion of fraud.
In practical banking terms:
  • “Honour cheque” = bank pays the cheque.
  • “Dishonour cheque” = bank refuses payment of the cheque.
The principle relating to honouring cheques was discussed in Westminster Bank Ltd v Hilton, where the court recognised that the bank acts as agent of the customer in relation to drawing and payment of cheques.

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