11125_crossing of Cheques

8/2/2019 11125_crossing of Cheques

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Definition

A cheque is a particular kind of negotiable instrumentand is defined as:

a signed unconditional order

in writing addressed by a person to his or her banker,

requiring the banker

to pay on demand

a sum certain in money

to, or to the order of, a specified person


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Paper Payment Systems


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Definition

The Parties: The drawer (or customer of the bank)

The drawee (the bank)

The payee or bearerThe Banks

Paying Bank

Collecting Bank


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Definition

A cheque is a negotiable instrument. The features of anegotiable instrument are (Bills of Exchange Act

1882 (B of EA 1882 s 3):

1. Title passes by delivery,

2. A holder can sue in his or her own name,

3. A transferee taking in good a faith and for value can

obtain a good title even if the previous holder did not,

provided: There has been no forgery and

Negotiability is not restricted e.g. crossed "a/c payee

only"


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Cheque Transaction

P - Paying Bank C - Collecting Bank

Debits Credits

Clearing System

Draws

A (Drawer) B (Payee)


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Negotiation

A cheque or other negotiable instrument is a debt.

A debt is a chose in action, it is intangible and it

not paid can only be sued upon.

A negotiable instrument is a chose (thing) in

action (can be sued on) compare with a chose in

possession which can be passed by handing over

the actual item e.g. a chair


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Negotiation

Negotiation means that a cheque or other

negotiable instrument can be passed from one

person to another - in effect the holders are

passing a debt from one to another


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Negotiation - Crossings

Cheques are of two types open & crossed

Ocs are those which are paid over the counter of

the bank. (need not be put through a bank account)great risk,Protection safeguardsto payment

through an account in the bank. No effect on----

A crossing tells the holder of a cheque that it can

or cannot be negotiated. It appears on the face of

the cheque. Now most cheques are crossed so as to

prevent negotiation.


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Modes of crossing

General crossing-(sec.123)-

Special crossing (Sec124) it requires the

name of the banker to be added across the

cheque either with or without the words not

negotiable. More safer

Restrictive crossing- commercial orbanking usage- a/c payee only or payee a/c

only


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Cont.

Not Negotiable crossing (sec.130) A

cheque may be crossed with words not

negotiable on it.

Get no better title than that of his transferor

and can not transfer better title


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Open cheque - can pay bearer in cash

Bradleys Bank

DatePayor order

the sum of..

Signed


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& Co - must be paid into a bank account

Bradleys Bank

DatePayor order

& Co

the sum of..

Signed


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A/c payee can only be paid into the payees bank account,takes away the negotiability

Bradleys Bank

DatePayor order

a/c payee only

the sum of..

Signed


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Not negotiable - takes away negotiability

Bradleys Bank

DatePayor order

Not negotiable

the sum of..

Signed


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Crossing opened by drawer - negotiable

Bradleys Bank

DatePayor order

a/c payee only OpenCrossing A Person

the sum of..Signed


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Crossing opened by drawer - negotiable

Bradleys Bank

DatePay..An Otheror order

a/c payee only OpenCrossing A Person

the sum of..Signed A Person


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Negotiation - Endorsement

Endorsement is a record of the negotiation and is

on the back of the cheque - this is now rare as

most cheques are crossed so as to preventnegotiation


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An Other pay A Friend


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An OtherA Friend

A Mate


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Holders of a Cheque

A holder is defined as the payee or indorsee who is in

possession or the bearer of it s 2 B of EA 1882

A person is a holder in due course if they take a cheque (B

of EA 1882 s 59): - complete and regular on the face of it;

- before it is overdue

- without notice of previous dishonour

- in good faith and for value - without notice of the transferor's title


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Forgery

Forgery of the drawer or endorser's signature renders the

cheque inoperative. It makes no difference if the forgery

could not be detected s24 B of EA 1882.

Parties before the forgery are not liable to the eventualtransferee

Parties after the forgery are liable to the transferees after

the forgery and therefore the original victim of the forgery

will usually be the loser.


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Forgery

If a customer fails to inform a bank of a forgery then the

customer may be estopped from suing the bank for paying

out on the forgeries. Under equitable estoppel the customer

by not telling the bank about the forgeries will have made

an assurance to the bank that the bank need not take action

against the forger. The bank in reliance will have not have

taken action against the forger and therefore will have

acted to its detriment. Greenwood v Martins Bank[1933]

AC 51 HL &Brown v Westminster Bank [1964] 2 Lloyd'sRep 187


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Forgery

Where a cheque has been materially altered by adding

words or figures to increase the amount or changing the

name of the payee it will be void s 64 B of EA 1882.However a customer must take reasonable precautions to

prevent an alterationLondon Stock Bank v Macmillan &

Arthur [1918] AC 777 HL; Young v Grote (1827) 4 Bing

253; Slingsby v District Bank[1932] 1 KB 544 CA


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Countermand

S.75 Bills of Exchange Act 1882 states that a bank's duty

to pay a cheque is ended by a countermand (stop) of

payment.

The order to stop a cheque must be clear andunambiguous,Baines v National Provincial Bank(1927)

96 LJKB 801. In particular they should refer to the number

of the cheque, which is a unique feature of the document.

Westminster Bank v Hilton (1926) 136 LT 315 HL.

A stop is not effective until it actually comes to the direct

attention of the bank. Curtice v London City & Midland

Bank[1908] 1 KB 293 CA


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Countermand

No requirement that the stop be in writing but bank will

require confirmation in writing if by telephone.

One of the joint holders of an account may stop a cheque

but both need to lift it. A payee cannot stop payment of a cheque only the drawer

if lost or stolen.

A drawer customer can stop payment of a cheque up to the

close of business on the day of presentation.

An "open" cheque cannot be stopped after the cash has

been handed to the presenter. Chambers v Miller(1862) 13

CBNS 125


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Countermand

Bank liable if pays a cheque outside normal banking hours

and a stop instruction is received before opening next day

Baines v National Provincial Bank(1927) 96 LJKB 801

Stop instruction applies to all accounts at the same branchif a specific account is not specified.Burnett v Westminster

Bank[1966] 1 QB 742

If a customer stops payment of a cheque because of a

dispute over payment or dissatisfaction with goods orservices for which the cheque was drawn then the

customer will remain liable for both payment of the goods

servicesand for the dishonour of the cheque.


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Countermand

S.75 Bills of Exchange Act 1882 states that a bank's duty

to pay a cheque is ended by a countermand (stop) of

payment.

The order to stop a cheque must be clear and

unambiguous,Baines v National Provincial Bank(1927)

96 LJKB 801. In particular they should refer to the number

of the cheque, which is a unique feature of the document.

Westminster Bank v Hilton (1926) 136 LT 315 HL.

A stop is not effective until it actually comes to the direct

attention of the bank. Curtice v London City & Midland

Bank[1908] 1 KB 293 CA

There is no requirement that the stop should be in writing


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Wrongful Dishonour

A bank will wrongfully dishonour a cheque if it fails to pay:

on an unstopped cheque, or

when the account is in funds in erroneous the belief that: it is overdrawn or

has exceeded an authorised overdraft facility or

is closed.

The bank may be sued for breach of contract and libelMarzetti v Williams (1830) 1 B & Ad 415., Jayson v

Midland Bank[1968] 1Lloyd's Rep 409 CA.


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Paying Bank

A bank is under a duty to its customers to pay chequesprovided:

a) the cheque is technically in order;

b) there is no legal bare to payment e.g. death of customer;

c) funds are available;d) cheque not countermanded;

e) bank not put upon enquiry.

A paying bank may need protection against two possible

actions:

an action for breach of contract from its customer; and

an action in conversion from some third party who is

the true owner of a cheque.


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Statutory Protection for Paying Banks

S. 60 Bills of Exchange Act 1882

The paying bank is protected from liability if it pays out on

an open or crossed cheque with forged or unauthorised

endorsements provided it does so:

a) in good faith, and

b) in the ordinary course of business.


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S. 1 Cheques Act 1957


an open or crossed cheque with no endorsement or an

irregular endorsement provided it does so:


b) in the ordinary curse of business.


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S. 80 Bills of Exchange Act 1882


a crossed cheque to a person as the true owner even if that

person is not in fact the true owner provided it does so:

a) in accordance with the crossing, and

b) in good faith, and

c) without negligence.


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Collecting Bank

The collecting bank has a duty to exercise reasonable care

and skill in collecting a cheque.


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Collecting Bank

The collecting bank has the following duties to itscustomer:

a) to present a cheque for payment with in a reasonable

time;

b) to adhere to current banking practice;

c) if a cheque is dishonoured to notify its customer on the

same day that it is aware of the dishonour;

d) Its responsibility is not discharged until the cheque in

favour of its customer is delivered to the branch upon

which it is drawn. Can now be done electronically s1

Deregulation and Contracting Out Act 1994 Regulations SI

1996/2993.


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Collecting Bank

S. 4 Cheques Act 1957

Where a banker:


b) without negligence

either

receives payment for a customer of any cheque

or credits a customer with the amount of such cheque and

receives payment, the bank will not be liable to the owner

of the cheque if the customer had no title to it.


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Collecting Bank

A bank cannot claim the protection when the cheque ispaid into and collected by a different branch of the same

bank since the collecting bank is not receiving payment for

a customer.LLoyds Bank Ltd v Savory [1933] 2 KB 122

CA Good faith is rarely an issue. However the issue of

negligence has been considered. The Bank is actually

liable in conversion for paying out on the drawer's cheque

but by virtue of the statute may be able to escape liability ifit can show that it was not negligent.


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Collecting Bank

Negligence may arise as follows:

When opening an account -

Hampstead Guardians v Barclays Bank Ltd(1923) 29 TLR

229,

Nu-Stilo Footwear Ltd v Lloyds Bank Ltd(1956) 7 ldb 121,

Marfani & Co Ltd v Midland Bank Ltd[1968] 1 WLR 956

CA,

Lumsden & Co v London Trustee Savings Bank[1971] 1Lloyd's Rep 114.


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Collecting Bank

Negligence may arise as follows:

Negligence in collecting the cheque -

Orbit Mining and Trading Co Lyd v Westminster Bank Ltd[1963] 1 QB

794 CA,A.L.

Underwood Ltd v Bank Of Liverpool and Martins [1924] 1 KB 755 CA,

Morison v London County and Westminster Bank Ltd[1914] 3 KB 356,

Midland Bank Ltd v Reckitt[1933] AC 1HL,

Motor Traders Guarantee Corporation Ltd v Midland Bank Ltd[1937] 4

All ER 90,

Thackwell v Barclays Bank Ltd[1986] 1 All ER 676,

Penmount Estates Ltd v National Provincial Bank Ltd(1945) 173 LT 344


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Cheque Guarantee Cards

A bank is never liable on a cheque. The purpose of a

cheque guarantee card is to create a collateral contract

under which the bank agrees to undertake to pay the holder

of the cheque the lesser of: its value or a fixed amount e.g.50.


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It was found necessary to introduce the cards to ensure

those who would not otherwise accept a cheque would,

with the bank's guarantee, agree to do so. The contract is

made between the bank and the payee with thecustomer/drawer acting as the bank's agent. However due

to the risk of fraud the amount of the guarantee is limited.

Withdrawals of cash are limited to one per day.

The standard conditions for guarantees by the bank are:

a) The cheque is drawn for an amount within the limit

stated on the cared in settlement of one transaction only

b) The cheque has the same name and code number as the

card


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The standard conditions are:

The cheque is:a) Drawn for an amount within the limit one transaction only

b) Same name and code number as the card

c) Dated with the date of issued) Issued and dated before the card's expiry date

e) Signed in the presence of the payee and the signature agrees

with that on the card

And

f) The payee writes the card number on the back of the cheque

g) The card has not been altered or defaced

First Sport Ltd v Barclays Bank[1993] 1 WLR 1229 CA


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If the customer doe not have enough money in the account

then he or she is liable to the bank who must honour the

cheques.Could be a criminal offence:Metropolitan PoliceCommissioner v Charles [1977] AC 177 HL.


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Mistaken Debit

A bank may mistakenly pay out in the followingcircumstances:

a) A bank pays a forged cheque;

b) A bank pays a stopped cheque;

c) A bank pays a cheque with insufficient;

d) A bank pays an altered cheque; or

e) A bank makes the same payment twice.


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Mistaken Debit

A bankmay recover money mistakenly paid in thefollowing circumstances:

a) The bank pays the money to the wrong person by mistake.

Negligence is irrelevant .Barclays Bank Ltd v W. J.

Simms, Son & Cooke (Southern) Ltd[1980] QB 677

b) The bank had no authority to make the payment

c) The bank has paid another bank as collecting agent for the

payee and the payee has withdrawn the funds.

d) The funds have passed through a mixed fund.

e) The bank has failed to act sufficiently promptly but only

applies if did not receive notice that the cheque would be

dishonoured. - Cocks v Masterman (1829) 9 B & C 902.


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Mistaken Debit

A bankwill not be able to recover money mistakenlypaid in the following circumstances:

1) It would have paid the cheque even if it had realised the

true situation; (very unlikely)

2) Where the holder receiving payment could stop the bankfrom claiming the funds by raising the defence of estoppel.


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Mistaken Debit

To prove Estoppel it must be shown:i) The bank made a representation that it would pay.

ii) The holder receiving payment has changed his or her

position; and acted in good faith - estoppel is an equitable

remedy - National Westminster Bank Ltd v Barclays Bank

International Ltd[1975] QB 654 A payee cannot act in

good faith here and a drawer cannot be acting in good faith

if the cheque has been legitimately countermanded.

(iii) The holder receiving payment acted to his or her

detriment as a result of receiving the payment.


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Mistaken Credit

Where a bank has mistakenly credited an account it may

re-debit the account or reclaim funds withdrawn .Customer may claim estoppel

Estoppel may be claimed by a customer


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Mistaken Credit

Estoppel may be claimed where:

i) the bank has made a representation of fact

ii) the customer must have relied upon the representation and

acted to his or her detrimentiii)the customer acted in good faith

Lloyds Bank Ltd v Brooks (1951),

United Overseas Bank v Jiwani [1976] 1 WLR 964

Avon County Council v Howlett[1983] 1 WLR 605 CA,

Scottish Equitable v Derby [2001] 2 All ER (Comm) 274 CA

11125_crossing of Cheques

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