Dubai Court of Cassation, Commercial Appeal No. 88 of 2025 (joined with Appeal No. 133 of 2025), judgment of 6 March 2025
A cheque is presumed to be an instrument of payment with a valid underlying cause, but the drawer may prove that it was given for another purpose, such as security. If it was given as security, the obligation to pay it is subject to a suspensive condition, namely the default it secures, and the beneficiary must prove that the condition has occurred. Merely drawing a cheque does not discharge the drawer; the obligation ends only when the drawee bank pays it. A court hearing a substantive challenge to the enforcement of a security cheque may limit enforcement to the amount actually outstanding under the secured obligation.
A lender advanced USD 1.5 million to an individual borrower. A company guaranteed the loan under a guarantee agreement of 9 December 2022 and handed the lender an undated cheque for AED 5,508,750 as security. The agreement provided that the guarantor would pay on written demand if the loan was not repaid by its first anniversary, and that the agreement would end, and the cheque be returned, if the lender received "any payment" before that date. The borrower paid three instalments of USD 50,000. The lender presented the cheque for enforcement in the Dubai cheque-execution system, and the guarantor brought a substantive enforcement dispute, arguing that the condition for return of the cheque had been met. The first-instance court dismissed the dispute; the appeal court, relying on an expert, limited enforcement to USD 1.35 million, the unpaid balance. Both sides appealed and the appeals were joined.
The Court of Cassation dismissed both appeals. It restated that a cheque is presumed to be a means of payment but that the drawer may prove another cause, such as security; a security cheque becomes payable only if the secured default occurs, which the beneficiary must prove; and drawing a cheque is not payment until it is cashed. Interpreting the clause, the Court held that the payment that would end the agreement before its term could, logically, only be repayment of the whole loan: the clause spoke of receiving a payment "until the repayment date" and the agreement did not provide for repayment in instalments. The expert, whose findings the appeal court was entitled to accept, found that USD 150,000 had been paid and USD 1.35 million remained. The lender's objection that the expert relied on copies of transfer documents failed, because he had discussed them before the expert without claiming they differed from the originals.
Security cheques are widely used in the UAE to back loans and guarantees, and since 2022 they can be enforced directly as executory instruments. This judgment shows that the drawer can still contest enforcement on the merits and that courts will cap recovery at the amount actually owed under the secured obligation. It also shows how courts read early-termination clauses in guarantee agreements.
| Provisions of Federal Decree-Law No. 50 of 2022 (Commercial Transactions Law) on cheques as executory instruments, applied without citing article numbers |
“فاذا ما ثبت ان الشيك كان على سبيل الضمان فان الالتزام بالوفاء بقيمته الى المستفيد يكون معلقا على شرط واقف ويتراخى اثره لحين تحقق هذا الشرط”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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