CHAPTER 5: Negotiable Instrument

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Crossing Cheque

For the protection and security, it is crossed to make it difficult for an authorized person such as a thief to obtain payment across the counter

Collecting Banker

Banker to whom a holder of cheque presents the cheque to be credited into holder's account. The banker's duty is to collect the amount from the drawer's bank

Can only be paid through bank

Open cheque can be exchanged for cash, even before the loss is discovered by owner

Protection of Bankers

Paying banker is where a customer draws a cheque on his banker

Collecting banker may be held liabe

With the cross, it conveys the instruction to pay the banker that payment should be made through a bank as the manner of payment

Pay to the right person according to the customer's mandate

To the true owner for wrongful conversion where he collects improperly on behalf of customer who was not entitled to the money

To his customer for breach of contract

A cheque is crossed by drawing two parallel lines across the face of cheque

Banker must bear the loss if the money goes to the wrong person

2 Types of Crossing

General Crossing

Section 76(1) of the Bill of Exchange Act 1949, where cheque bears across its face either in the words "and company" between two parallel transverse lines or either with the words "not negotiable"

Payment in due course

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Section 85(1) the Bill of Exchange Act 1949

Payment can be made at/after maturity of the bill to the holder in good faith and without notice that the title on cheque is defective

Receives payment for a customers

Having credited a customer's account

Forged / unauthorised indorsement

Consist words such as "Co.", "Not Negotiable" or "A/C Payee"

The element that the banker will not be liable

Acted in good faith/ acted honestly

Acted without negligence

Acted for the customer

Examples of negligence by Banker

a cheque payable to order a demand is drawn on banker

In case of Oriental Bank of Malaya v Rubber Industry (Replanting) Board. A customer of a bank as soon as he opens an account with the bank. the duration of the account is immaterial

Banker is deemed to have paid the cheque in due course even though indorsement has been forged or made without authority

Paying banker is not protected if he pays a cheque drawn on him in which the drawer's signature is forged

In section 95, a thing is deemed to be done in good faith within the meaning, in fact done honestly whether it is done negligently or not

If the banker had acted in good faith, but if he has been negligent, the banker would not be protected.

Paying banker will be protected if it involved other persons who are not his customers

Bank honors cheque when customers present cheque crosses "A/C Payee" and not the payee named

Opening an account without inquiry into the identity of customer

Cheque is discharged by payment in due course on behalf of the drawee or acceptor

Cheque which is not indorsed / irregularly indorsed

Protection to banker where cheque is crossed

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Section 82 (1) of the Bill Exchange Act 1949 where a banker in good faith pays a cheque drawn on him is not indorsed

Paying banker is protected if he pays a cheque which is not indorsed in good faith course of business

The effect of general crossing is, the paying banker can only pay the amount of the cheque to a collecting banker and banker cannot pay cash for the cheque across the counter

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Where customer pays in cheque for unusual large amount

Not Negotiable Crossing

Banker which has the crossed cheque in good faith and without negligence

Section 81 of the Bill of Exchange Act 1949,person takes crossed cheque which bears 'Not Negotiable' shall not have giving better title to the cheque than what which the person he took from

Ig the cheque is in the hands of the payee, the drawer is entitled to the same rights and be placed in the same position as if payment of the cheque has been made to the true owner

Caae: Wilson and Meeson v Pickering [1946]

Paying banker will be protected under section 80 if he pays to a person other than the true owner in good faith without negligence and according to crossing

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Account Payee Only Crossing

act as notice to the collecting banker that only the account of the payee is to be credited not a third party. A collecting banker can be held liable if it is negligence for not considering the crossing.

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Section 81A of the Bill of the Exchange Act 1949, Case Woodland Development Sdn Bhd v Charted Bank, PJTV [1986]

Special Crossing

Section 76(2) of the Bill of Exchange Act 1949, a cheque bears across its face an addition of the name of a banker, either with or without the word "not negotiable", and the cheque is crossed specifically and to that banker.

The name of banker is written between the parallel lines or it is across the face of the cheque without the lines. The word 'not negotiable' may be added to the crossing.