OVERDRAFT. An overdraft is created when a customer of a bank has drawn cheques upon his account there for a larger amount than the balance to his credit. Unless an overdraft has been arranged with the bank, such proceedings are dangerous in the extreme to the person who draws the cheque. It is, indeed, a mode of obtaining money by false pretences, if he cashes the cheque with some third party without disclosing the actual state of the banking account. When a cheque in overdraft of an account is pre sented for payment at the bank, the usual course is for the latter to return it dishonoured to the party presenting it ; but the bank if it so pleases can honour the cheque, and may recover the amount of the overdraft, as a loan, from its customer. Apart from special agreement to the contrary, a bank is entitled to consider an account as overdrawn when the cheques upon it exceed the credit by reason only of cheques and bills already paid into the credit of the account by the customer not having then been cleared. When a
customer's cheque is returned dishonoured for this reason it is usual for the bank to make a note thereon of the reason by indorsing the words "effects not cleared," or requesting that the party presenting it should "represent." Under such circumstances the cheque, if presented again in the course of a day or two, will probably be duly honoured. A director or manager of a bank commits a criminal offence if, not acting in good faith but with an intention to injure and defraud the bank, he permits overdrafts which he does not believe and has no reasonable ground to believe Ai ill be repaid. See also the article on BANKER AND CUSTOMER.