Crossing of cheque.

Types of crossing, Bills of exchange, Parties to

bills of exchange. Types of endorsement
According to the Negotiable Instruments Act 1881, ‘a bill of
exchange is defined as an instrument in writing containing an
unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money only to, or to the order of a
certain person or to the bearer of the instrument.’

Types of NEGOTIABLE INSTRUMENTS

1. Pay on demand
2. Pay at sight
3. Pay on presentment
4. No time is specified

A sells goods to B
A is the seller
B is the buyer
B doesn’t has money to pay right away
Legal instrument called bills of exchange
Is used to facilitate the credit transaction
It is a legal evidence
To assure the seller that buyer will pay them the credit amount on
a particular date.

Parties to the bills of exchange

(1) Drawer:
 The drawer is the maker of a bill of exchange.
 The bill is signed by Drawer.
 A creditor who is entitled to receive payment from the
debtor can draw a bill of exchange.
(2) Drawee:
 Drawee is the person upon whom the bill of exchange is
drawn.
 Drawee is the debtor who has to pay the money to the
drawer.
 He is also known as ‘Acceptor’.
(3) Payee:
 The payee is the person to whom payment has to be made.
 The payee may be the drawer himself or a third party.

Features of Bills of Exchange

1. A bill of exchange an instrument in writing.
2. It is drawn and signed by the maker i.e. drawer of the bill.
3. It is drawn on a specific person i.e. drawee, to pay the
specified amount.
4. Contains an unconditional order to a person i.e. drawee.
5. To make an instrument of value the drawee must accept it.
6. The specified amount is payable to the person whose name
is mentioned in the bill or to his order or to the bearer.
7. It specifies the date by which amount should be paid.
8. Payment of the bill must be in the legal currency of the
country.
 9. It must be properly stamped.
10. It must bear a revenue stamp.

Cheques
Cheques are some of the most important and common forms
of negotiable instruments. The Negotiable Instruments Act, 1881
defines and regulates cheques. Almost all large business
transactions these days make use of cheques instead of cash.
Apart from drawers and drawees, parties to a cheque include
payees, holders, endorsers, and endorsees.

Section 6 of the Negotiable Instruments Act defines what a

‘cheque’ means. According to this provision, a cheque is basically
a bill of exchange drawn on a specific banker. Furthermore, it is
not payable otherwise than on demand.
It is always drawn on a banker and is payable on demand.
PARTIES TO CHEQUE
o DRAWER - The person who signs the cheque and order for
payment
o DRAWEE - It is always bank on which cheque is drawn and
is ordered to pay the amount of cheque.
o PAYEE - The person to whom the cheque is payable. ( In
many cases, drawer and payee can be the same person.)

It can either be open or crossed.

An open cheque is the bearer cheque. It is payable over the
counter on presentment by the payee to the paying banker.
While a crossed cheque is not payable over the counter but shall
be collected only through a banker. The amount payable for the
crossed cheque is transferred to the bank account of the payee.
MODES OF CROSSING
1. GENERAL CROSSING 
When a cheque bears two transverse parallel lines at the left
hand of its top corner. Words such as 'and company' or any
other abbreviation (such as & co.) may be written between
these two parallel lines, either with or without words 'not
negotiable', is called General Crossing. 

Effect - Payment can be paid through bank account only, and

should not be made at counter of paying bank.

2. SPECIAL CROSSING 
When a cheque bears the name of the bank in between the
two parallel lines, with or without the words 'not negotiable'
is called Special Crossing.

Effect - The bank will pay to the banker whose name is

written in between the crossing lines.

3.  RESTRICTIVE CROSSING /ACCOUNT PAYEE

CROSSING 
In this, crossing of cheques is done by writing Account
Payee or Account Payee only in between the crossing lines.
 Effect - Payment will be credited to the account of payee
named in the cheque.

4. DOUBLE CROSSING - When a cheque bears two special

crossing, is called Double Crossing. In this second bank act
as agent of the first collecting banker. It is made when the
banker in whose favour the cheque is crossed does not have
branch where the cheque is paid.

. Types of endorsement

1. Blank Endorsement or General Endorsement

An endorsement is blank or general where the endorser signs his
name only, and it becomes payable to bearer. Thus, where a bill is
payable to “Ram or order”, and he writes on its back “Ram”, it is
an endorsement in blank by Ram and the property in the bill can
pass by a mere presentation.

We can convert a blank endorsement into an endorsement in full.

We can do so by writing above the endorser’s signature, a
direction to pay the instrument to another person or his order.

2. Special or Full Endorsement

An endorsement “in full” or a special endorsement is one where
the endorser puts his signature on the instrument as well as
writes the name of a person to whom order the payment is to be
made.
A bill made payable to Ram or order, and endorsed “pay to the
order of Shyam” would be specially endorsed and Shyam
endorses it further. We can turn a blank endorsement into a
special one by adding an order making the bill payable to the
transferee.

3. Sans Recourse Endorsement

A clause inserted into an agreement which indicates that the

endorser does not wish to incur liability if the document of title is
not honored. It is essentially saying that the other party is
entering into agreement at his or her own risk. For example, if
Party A (the "endorser") signs a bill of exchange containing a sans
recourse endorsement with Party B (the "endorsee") over a
financial instrument, Party B signs into an agreement with Party
C over the same instrument, and the instrument is dishonored,
the Party B cannot seek payment from Party A. A sans recourse
endorsement is often made by those in a representative capacity
rather than those acting as principal

4. Restrictive Endorsement

The endorsement of an instrument may contain terms making it

restrictive. Restrictive endorsement is one which either by express
words restricts or prohibits the further negotiation of a bill or
which expresses that it is not a complete and unconditional
transfer of the instrument but is a mere authority to the endorsee
to deal with bill as directed by such endorsement.

“Pay C,” “Pay C for my use,” “Pay C for the account of B” are
instances of restrictive endorsement. The endorsee under a
restrictive endorsement acquires all the rights of the endoser
except the right of negotiation.
5. Partial Endorsement
A partial endorsement is one which purports to transfer to the
endorsee a part only of the amount payable on the instrument.
Such an endorsement does not operate as a negotiation of the
instrument.
Example: A is the holder of a bill for Rs.1000. He endorses it “pay
to B or order Rs.500.” This is a partial endorsement and invalid
for the purpose of negotiation.
6. Contingent Endorsement
If the endorser of a negotiable instrument, by express words in
the endorsement, makes his liability, dependent on the happening
of a specified event, although such event may never happen,
such endorsement is called a 'conditional' endorsement
7. Sans Frais Endorsement
A sans frais endorsement is an endorsement in which, by writing
the words ‘Sans Frais’, the endorser makes it clear that no one
should incur any expenses on his/her account in respect of the
negotiable instrument.
8. Facultative Endorsement