If the bank wrongly refuses to pay a customer's cheque, it breaches its contract with the customer and is liable for damages. If the customer suffers losses which are directly and foreseeably the result of the dishonour, these losses may be recovered from the bank. The most common damage is to the customer's credit. If the customer is a trader, then this damage is considered to be so inevitable that it is not even necessary to prove any actual damage. Customers who are not traders must prove damage to their credit.
There may be damages for defamation as well as for breach of contract. This occurs because it is common for the bank to note on the cheque the reasons for the dishonour. Many non-trading customers, for example, those engaged in other forms of business, clergy or others whose reputation is an essential part of their calling, may obtain substantial damages as a result of defamatory notations on the cheque. 'Present again', 'not sufficient funds', 'refer to drawer' and other phrases suggesting the customer has written a cheque without having adequate funds in the account, are nearly always defamatory. Of course, these damages are only available if the dishonour was wrongful.
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