When a Cheque Stops Meaning Pay Now

Jul 18 , 2026. By Yehualashet Tamiru ( Yehualashet Tamiru (yehuala5779@gmail.com) is a partner at Ethio Alliance Advocates LLP. )

Ethiopia has long held a comprehensive legal framework for cheques, built on international-ly recognised principles. Recent judicial developments recognising cheques as guarantees, together with uneven enforcement, have injected serious uncertainty into an area of com-mercial law that lives or dies by predictability and trust. Left unaddressed, that uncertainty threatens the essential function of the cheque as an unconditional payment instrument and the confidence on which Ethiopia's financial and legal systems depend, warns Yehualashet T. Tegegn (yehualashet.t@ethioalliancelaw.com), a partner at Ethio Alliance Advocates LLP.

A cheque works because it promises one thing without conditions, which is to pay this amount, now. Strip away that certainty, and the instrument becomes just another IOU, enforceable only after a long argument.

Ethiopia built part of its commercial credibility on that certainty. But, a recent turn by the Federal Supreme Court Cassation Bench is quietly unsettling it, treating some cheques as guarantees rather than as immediate orders to pay.

Modern banking in Ethiopia began in 1905 with the Bank of Abyssinia, whose founding agreement required the government to deposit its revenues in the Bank and to make public payments by cheque. From the very start, the cheque was an official payment instrument bound up with public confidence and financial discipline.

Use stayed narrow for decades in a largely cash economy with limited banking access. However, growing trade, expanded urbanisation, and the growth of banking in the 1940s and 1950s widened the reach of current accounts and cheques. The latter took hold as a secure and efficient alternative to cash.

The legal foundation was established in 1960 with the adoption of the Commercial Code, which fully regulates cheques, governing issuance, endorsement, transfer, and enforcement. It drew heavily on the Geneva Uniform Law on Cheques of 1931, a deliberate move to align Ethiopian commercial law with international standards.

The Code's principal drafter, Jean Escarra, acknowledged that these provisions largely adopted established international principles to promote legal certainty and ease commercial dealings.

In law, a cheque is a negotiable instrument carrying an unconditional order by the drawer to the drawee bank to pay a stated amount immediately to the payee or bearer. Its defining traits are unconditionality and payment on demand. Unlike a contractual guarantee, it is meant to operate independently of the underlying transaction. Its value lies in the certainty that it is an immediately enforceable payment obligation.

To protect that certainty, Ethiopian law places strict duties on the drawer. Issuing a cheque without sufficient funds can trigger civil and criminal liabilities. Where a cheque is dishonoured, the drawer and, in some circumstances, the endorsers may be held liable to ensure payment.

Criminalising a dishonoured cheque serves several public purposes. It protects confidence in cheques as reliable substitutes for cash. It deters fraudulent or reckless conduct by discouraging cheques written against empty accounts. It offers a faster and more effective remedy than drawn-out civil litigation. And it promotes financial discipline, pressuring individuals and businesses to hold sufficient funds before issuing a cheque.

The purpose is not only punitive. It guards the integrity of the financial system. For years, courts enforced these principles, imposing criminal liability for dishonoured cheques.

Nonetheless, recent rulings of the Cassation Bench have introduced real uncertainty. Justices held that, in certain circumstances, a cheque may be issued as a guarantee rather than an immediate payment instrument, and that the dishonour of such a cheque need not give rise to criminal liability.

This ruling appears to depart from earlier reasoning, which recognised the existence of guarantee cheques but did not clearly exempt drawers from criminal responsibility.

The shift raises a basic problem about what a cheque is. Allowing it to function as a guarantee introduces conditionality into an instrument that is, by definition, unconditional.

Parties may fairly rely on their contractual relationship in a civil dispute, but stretching that logic into the criminal sphere risks hollowing out the very function of the cheque as an immediately payable instrument. Once a cheque becomes a conditional obligation, its reliability as a means of payment is gravely weakened.

The new approach also blurs the line between negotiable instruments and contractual guarantees.

A guarantee depends on the performance or default of some underlying obligation, whereas a cheque is designed to work regardless of such conditions. Confusing the two breeds legal uncertainty and opens the door to abuse, as parties characterise cheques as guarantees to escape criminal liability while still using them to apply commercial pressure.

The practical fallout is visible in enforcement. A criminal case usually starts with a complaint to the police and a preliminary investigation, yet the practice is strikingly uneven.

Some investigators treat the mere existence of an underlying commercial agreement as proof that the cheque was a guarantee, and decline to proceed. Others press on even where written guarantee agreements exist. That inconsistency undermines the uniform application of the law and erodes confidence in the criminal justice system.

The problem is compounded by opacity. In many cases, the drawer learns of a complaint only at the point of arrest, and once released on bail, parties often settle outside court. Settlement in itself is unobjectionable, but the way it frequently unfolds is not.

Parties sometimes execute backdated agreements that recast the cheque as a guarantee to defeat criminal liability. The room for manipulation runs both ways. A payee can wield the threat of prosecution to extract payments larger than the actual debt, while a drawer can lean on a fabricated agreement to dodge responsibility. Both practices corrode fairness and respect for the rule of law.

Reports of selective enforcement deepen the concern. Similar cases can be handled differently depending on subjective or outside influence, feeding a perception of arbitrariness. That is especially damaging to foreign investors, who consider a cheque as an unconditional payment instrument.

The prospect that an Ethiopian Court might later treat it as a guarantee adds legal and commercial risk to every transaction that relies on one.

The wider economic stakes are considerable, too. Dependable payment systems are foundational to commerce and investment. When the legal status of the cheque becomes uncertain, businesses become reluctant to accept it, rely more on cash, and incur higher transaction costs.

The same uncertainty chips at Ethiopia's appeal as an investment destination, by weakening confidence in the predictability of its commercial law at a moment when the country is working to attract capital.

Restoring confidence in the cheque calls for several reforms. The Cassation Bench needs to provide clearer and more consistent guidance, reconcile its conflicting decisions, and reaffirm the instrument's legal nature. The legislature should address the status of cheques issued as guarantees head-on and define the scope of criminal liability with precision.

Police officers, prosecutors and judges should receive stronger training so that the law is read and applied consistently. Procedural safeguards deserve attention too, with clearer rules for opening investigations, better communication with accused persons, and effective oversight to narrow the space for abuse and lift transparency.

PUBLISHED ON Jul 18,2026 [ VOL 27 , NO 1368]