Business Low Cheques Notes
Business Low Notes :-
A cheque is a bill of exchange drawn on a specified banker and not expressed lo be payable otherwise than on demand. It is like a bill of exchange always drawn on a bank payable on demand. Therefore, it must satisfy all the requirements of a bill (section 6).
It must be in writing and signed by the drawer. It should contain an unconditional order to a specified banker to pay a certain sum of money to a particular person or to his order or to the bearer on demand.
Distinction between Bills and Cheques
- A cheque is always drawn on a banker, while a bill may be drawn on anyone, including a
- A cheque’s payment is made when it has been demanded whereas in case of a bill its nature may be such that payment has to be made on demand or after the expiry of a certain period after date or
- In case of a cheque a bearer can get payment on demand but a bill’s payment can not be demanded by the
- Acceptance of bill is necessary for the demand of its payment, in case of cheque acceptance is not required and is aimed for quick
- In case of bills ordinarily a provision for grace days is made (which is generally of 3 days) whereas in case of cheques no such grace is
- In the absence of presentment of a bill for payment the liability of bill’s drawer ceases, whereas liability of cheque’s drawer ceases when the delay caused in presentment for payment results in
- Notice must be served when the bill is dishonoured, but when a cheque is not honoured, no such notice is
- A cheque being a revocable order the authority may be revoked by countermanding payment, and is determined by notice of the customer’s death or insolvency. In case of a bill the position is different, it can not be
- A cheque may be crossed to secure its payment, no such crossing can be done in case of a
( BBA 1st Semester Business Low Notes )
Business Low Liability of a Banker Notes
A banker is one whose business is to honour cheques drawn upon him by persons and for whom he receives money on current accounts. If a person opens a current account by depositing certain money with the banker, a relationship of creditor and debtor emerges between the customer and the banker and the banker undertakes to honour the cheques drawn by the customer so long it has sufficient funds to the- credit of the customer. If a banker without justification, fails to obey
his customer’s mandate which is issued in the form of a cheque, he will be liable to compensate the drawer for any loss or damage suffered by him. But the payee or the holder of the cheque has no cause of action against the banker as the obligation to honour cheques is only towards the drawer.
The customer may, however, be awarded very heavy damages, if he proves loss of credit on account of the dishonour, and the rule is the smaller the amount of a cheque dishonoured the larger the amount the damages.
There are numerous cases in which the banker must refuse to honour his customer’s cheques :
- When customer countermands payment. When a customer after issuing a cheque, issues instructions not to honour a cheque, the banker must not pay it. If the bank pays it, he will be\liable to make good the customer’s
- When banker receives notice of customer’s Notice of customer’s death terminates banker’s authority to honour cheques.
- When customer becomes insolvent. When a customer has been adjudged an insolvent, all his assets vest in the Official Assignee or the Court, and the banker must thereafter refuse to pay his
- When banker receives notice of customer’s insanity, he must not honour his
- When the banker receives a garnishee order from the court relating to the customer’s money, the banker should not honour cheques drawn against the customer’s
- The banker should not honour his customer’s cheques after the customer has given notice of assignment of the credit balance of his
- When the holder’s title is defective, and banker comes to know of the
- When the banker comes to know that the customer is drawing cheques for unlawful purposes.
- When the banker has received a notice from the customer for closing the
When banker may refuse payment. In the following cases the banker may, if he likes, refuse to honour the cheques :
- Where the cheque is post-dated and is presented before the date noted on it. The banker is required to pay the cheque on the date which the cheque bears and not before. In fact, payment before that date is made by the banker at his own risk, for if the customer countermands payment or issues another cheque bearing an earlier date, the banker cannot debit the customer’s account with the amount of the post-dated cheque.
- Where the banker has not got sufficient funds of the drawer with
- Where the funds in the hands of the banker are not properly applicable to the payment of the customer’s cheque. For example, the funds are held by the customer in trust, and the cheque is issued in breach of trust, the banker may refuse to
- Where the cheque is of doubtful legality. The banker may refuse to pay if the cheque is irregular or ambiguous, materially altered or drawn in a doubtful
- Where the cheque is presented after office
- Where the cheque is presented at a branch where the customer has no account or where his account is
- Where some persons have joint account and the cheque is not signed by all jointly, or by the survivors of them. But if the cheques are payable to Either or survivor then the chrque signed by any of the two parties will be sufficient for payment.
- Where the cheque has been allowed to become stale, i.e., it has not been presented for payment within a reasonable time after the date mentioned in it. In India, a cheque presented 6 months or more after the date is regarded as
Crossing of Cheques
Business Low Notes :-
A cheque is either an “Open cheque” or a “crossed cheque”. An open cheque is uncrossed and can be presented by the payee to the banker on whom it is drawn and will be paid over the counter. An open cheque is, however, liable to great risk in course of circulation. It may be stolen or lost and the finder may get it cashed. In order to avoid the losses incurred by open cheques getting into the hands of wrong parties the custom of crossing was introduced.
A Crossing is a direction to the paying banker to pay the money generally to a banker or to a particular banker, as the case may be, and not to pay to the holder across the counter.
A banker paying a crossed cheque over the counter will be liable to the customer if the holder turns out to be a person not entitled to pet payment. The object of crossing is to secure payment to a banker so that it could be traced to the person receiving the amount of the cheque.
There are two types of crossing – General and Special. To these may be added another type- Restrictive crossing. A general crossing is one where a cheque bears across its face two transverse lines with or without the words “and company” or “& Co.” or two parallel transverse lines with or without the words “not negotiable”. If a cheque is crossed generally; the paying banker shall pay only to a banker.
A special crossing is defined thus: “Where a cheque bears across its face an addition of the name of a banker, either with or without the word “not negotiable” that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”
In a general crossing the parallel transverse lines are necessary although in a special crossing they need not be there. But in the later case, the name of the banker is essential to whom or to whose collecting agent alone the payment will be made.
Restrictive crossing have been adopted by commercial usage in order to obviate the risk of a their obtaining payment. They consist in addition to the general or special crossing the words ‘Account Payee’ only. Such crossing warn the collecting banker that the proceeds are to be credited only to the account of the payee, of the party named.
If a cheque is made payable to a payee and to him only, it becomes non-transferable in the strict sense. He is the only person who can get payment. But where a cheque is crossed and bears the word ‘not negotiable’ it is transferable, but it loses its special feature of negotiability. Such a cheque is like any goods, the transferee of which does not get a better title than that of the transferor, the transferee for value and in good faith is not a holder in due course.
A cheque may be crossed by the drawner or by the holder. The holder may add the words ‘not negotiable’ to a crossing. The word not negotiable represent the desire of the drawer that it should not be negotiated further.
Examples of Crossing
- General Crossing (Sec. 123)
- Two parallel transverse lines with or without the words ‘& Co.’ across the face of a cheque.
- Two parallel transverse lines across the face of a cheque with the words ‘not negotiable’.
B. Special Crossing (Sec. 124)
Two parallel transverse lines across the face of a cheque with the name of a banker
C. Restrictive Crossing
Addition of words ‘account payee only’ to the words general or special crossing.
Who can do crossing
According to Section 125 following persons can cross a cheque :
- The drawer-generally or
- The holder who gets an uuncrossed cheque can subsequently cross it. If he gets a generally crossed cheque, he may cross it specially. To generally or specially crossed cheques, he may add the words ‘not negotiable’.
- Where a cheque is specially crossed to a banker the holder may again cross it specially to another bank or to his agent for
- Where a cheque is crossed specially the banker to whom it is crossed may again cross it specially to another bank or his agent, for