A cheque is ordinarily paid by the drawee bank if it is in perfect order. But sometimes a cheque is not paid. When a cheque is paid by the drawee bank, it is said to be honored. When it is not paid it is said to be dishonored. In the following cases the bank may dishonor a cheque:
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- When the customer has died and the bank has notice of his death.
- Where the customer has become insolvent or an order of adjudication has been passed against him.
- When the bank has received an order from the court prohibiting payment out of the funds belonging to the customer.
- When a customer becomes a lunatic and the banker has got notice of his insanity.
- Where the drawer countermands payment.
- When the customer has not got sufficient funds with the bank and there is no overdraft arrangement.
- Where there are material alterations or signatures of the drawer or endorses are irregular.
- When the drawer has closed his account prior to the presentation of cheque.
- When a cheque is mutilated.