cheque rule

When goods or services are paid for by cheque, a separate contract is entered into between the seller and buyer to the contract that was entered into for the supply of goods or services. Thus, when a cheque is returned unpaid, the seller may sue either under the contract for supply or, independently of the contract of supply, the contract created upon issuing the cheque to the seller. The seller may commence proceedings based on the Cheque Rule, as the cheque has been returned unpaid.

Usage: The seller of the goods sued for recovery on the basis of the Cheque Rule.

Related Words: litigation; summary judgment; bill of exchange; letter of credit; cheque; performance bond.