Professional Documents
Culture Documents
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9.1 THE PAYING BANKER
9.1.1 Definitions
- Paying bank: the bank on which a cheque is drawn i.e. the bank whose name is
printed on the cheque) and which pays the amount for which the cheque is written and
deducts that sum from the customer’s account.
- Drawee or the Paying bank is the bank at which the drawer of a cheque has his or
her account and upon which the cheque is drawn. In the case of a bill of exchange it is the
person who agrees to provide the specified sum of money, and who in signing the bill
becomes the acceptor.
- Drawer: the person signing a cheque or bill of exchange. With a cheque, the drawee
as the issuer, orders his or her bank to pay out. With a bill of exchange, the drawer issues
the bill and orders another party (the drawee) to pay the sum of money specified on the bill.
- Payee: the person to whom a cheque or bill of exchange is made payable.
- Collecting Bank: a bank into which a person has deposited a cheque, and which has
the duty to collect the money from the account of the drawer of the cheque.
- Correspondent Bank: bank that accepts deposits of, and performs services for,
another bank (called a respondent bank) for a fee. Generally, the two banks will be in
different cities (countries). Services include handling out-of-area cheques, trusts and
technical services, and acceptance of deposits from the out-of-area institution.
- Indorsement: it is the act of the owner or payee signing his/her name to the back of
a cheque, bill of exchange or other negotiable instrument so as to make it payable to
another or cashable by any person.
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- Lipkin Gorman v Karpnale Ltd. [1989]; duty of care extends beyond exercising care in
construing customer’s mandate.
- Selangor United Rubber Estates v Craddock & Ors. No.3 (1968); Karak Rubber Co. Ltd.
v Burden (1972); duty to make inquiries before paying if sufficient grounds to suspect some
fraud.
- If bank knowingly assists in a fraudulent act the paying bank will be liable as a
constructive trustee.
- Malayan Testing Laboratory Sdn Bhd. v Standard Chartered Bank Malaysia Bhd
[2009] 10 CLJ 234; the High Court at George Town ruled that honouring of tampered
cheques by banks amounted to negligence.
- It was held that the Standard Chartered Bank Malaysia Bhd to pay more than RM1.2
million in damages for negligently facilitating an accounts clerk to credit RM860,942.40 from
the current account of Malayan Testing Laboratory Sdn Bhd’s (MTL) into her personal
accounts and to overdraw the company’s account. The Court found that the transactions in
this case were so “out of the ordinary” with regard to the facts and its surrounding
circumstances that they ought to have raised doubts in the mind of the banker and caused
the bank to make an in-depth enquiry.