CHEQUES

Statute: the Bill of Exchange Act 1949

FORMATIONS OF CHEQUES

There are different ways a cheque can be formed:-

1. Undated Cheques
2. Overdue or State Cheques
3. Ante-Dated and Post-Dated Cheques
4. Crossing of Cheques

Undated Cheques
S.3(4)(a): a cheque which is not dated is a valid cheque.

Overdue or State Cheques

S.36(3): a cheque is overdue if it has been in circulation for an unreasonable length of time. A
cheque is state when it has been in circulation for a long time, normally after the expiry of six
months or more from its date.

Ante-Dated and Post-Dated Cheque

S.13(2): a cheque which is dated may be ante-dated, post-dated or Sunday dated.

CROSSINGS OF CHEQUE
A cheque which is crossed can only be paid through a bank and therefore the person presenting the
cheque must have a bank account.

Crossing is made to protect the cheque from being cashed by a person who is not entitled to do so.

Types of Crossing

Section 76 divides crossing into 2 main types:

● General

● Special

GENERAL CROSSING

S.76(1) general crossing consists any of the following methods:

Two parallel transverse line only Two parallel line with the words ‘not
Not negotiable
negotiable’

egotiable
 The words ‘and company: between two parallel The words Account Payee
transverse lines

And company Account payee

The words ‘and company’ with the words ‘not The words ‘ & Co’ with the words ‘not
negotiable’ And company not negotiable negotiable’

& co not negotiable

Effect of general Crossing

Paying banker can only pay the amount of the cheque to a collecting banker

SPECIAL CROSSING
S.76(2)- a crossing is special when the name of a banker is written between the parallel transverse
lines or it is written across the face of the cheque without the lines.

The words ‘not negotiable’ may also be added to the crossing.

Special Crossing
Bank Duit

Bank Duit not negotiable

Bank Duit

Effects of a Special Crossing

Paying banker must pay the amount of the cheque only to the collecting banker named in the
crossing.

Two types of expressions inserted between the lines are:

1. Not negotiable
2. Account payee only
Not negotiable

S.76: a person is permitted to add the words ‘not negotiable’ between the across of the cheque.

S.81: effect of crossing a cheque with the words ‘not negotiable’. The cheque losses the full
character of negotiability but remains transferable.

The cheque can be transferred but the person taking the cheque (transferee), however honestly and
for value, cannot obtain a better title than that of the person from whom he receives (transferor).

If the title of the transferor is defective, it will affect the title of the transferee even though the
transferee does know about the defects.

EXAMPLE: if a cheque crossed ‘not negotiable’ is stolen, the person taking it from the thief cannot
retain it against the true owner of the cheque because his title to the cheque depends on the
transferor and this case, the transferor has no title to it at all. The defect is transferred to him.

Case: Wilson and Meeson v Pickering (1946) 1 KB 422

W drew a cheque in blank crossed ‘not negotiable’. W’s clerk, who was supposed to fill in the
amount and the name of the payee, inserted a sum in excess of her authority. The clerk delivered it
to P in payment of her own debt.

The court held that since the clerk had no title to the cheque, P had no better title. W therefore does
not have to pay P.

‘Account Payee Only’

The types of words used are:

● Account Payee

● A/C Payee

● A/C Payee Only

The reason for putting these words together in a crossing is to minimize the chances of fraud
because these words operate as notice to the collecting banker that only the account of the payee is
to be credited.

Collecting banker will be guilty of negligence and liable to the true owner for the amount of the
cheque, if the banks disregard the crossing.

Woodland Development Sdn Bhd v Chartered Bank, PJTV Densen (M) Sdn Bhd (1986) 1MLJ 84

Plaintiffs company were the payees of two ‘Account Payees’ cheques. A director of the company
handed these two cheques to two other directors for the purpose of opening an account in the
plaintiff’s name in a bank. All three directors of the plaintiff company were also directors of Densen
(M) Sdn Bhd. (Third Party). The third party had an account with the defendant’s bank.
The two directors, to whom the cheques were given, persuaded the manager of the defendant bank
to collect the amount for the third party instead of opening an account in the name of the plaintiff
company. The plaintiff company brought an action against the defendant bank and the third party
for conversion and for money had and received for their use.

The court held that the defendant bank is liable for negligence in collecting the two ‘Account Payee’
cheques for a third party who was not the payee named on the cheques.

Matters Affecting Cheques

There are few situations which affect the cheques in the transaction. They are:

1. Altered cheque
2. Cancelled cheque
3. Forged cheques or unauthorized endorsement
4. Stolen cheques
5. Undated cheques

Altered cheques

S.64(1): “if a bill of exchange or a cheque has been materially altered without the drawer’s authority,
the drawer is discharged from liability and the drawee bank cannot debit the drawer’s account if it
had paid such a bill or cheque.”

S.64(2): a cheque is materially altered if there are changes to date, amount, name of payee or any
crossing or any change which alters the business effect the cheque.

Alteration may be:-

● Apparent

● Non-apparent

Non-apparent alteration

This happen when the alteration is executed so cleverly that it is not visible on reasonable inspection
of the cheque.

London Joint Stock Bank Ltd v Macmillan and Arthur (1918) AC 777
An account clerk who worked for the respondent made a cheque to be signed by the employer. The
clerk left a space to the left of the number two between it around the pound symbol, the right of the
figure and before the symbol. Besides that, the clerk did not write the amount in words. The clerk
misappropriated the cheque. The cheque was presented to the firm’s bankers. The clerk absconded
after getting 120 pounds.

The court held that the bank was entitled to debit the customer’s account. The partner that is the
employer had neglected to take all precautions.

But if the alteration had been obvious, the bank is protected.

In case of fraudulent alterations, the customer owes a duty of care in drawing the cheque not to
facilitate fraud.

The paying bankers are protected as a result of drawer’s carelessness. But it must be a result of
alteration, which is non-apparent, and due to the customer’s negligence in drawing the cheque.

CANCELLED CHEQUE

S.63(1) Bill of Exchange Act: “where a bill is intentionally cancelled by the holder or his agent, and
the cancellation is apparent, the bill is discharged.”

FORGED CHEQUE OR UNAUTHORISED INDORSEMENT

A person who is aware that his signature has been forged must inform the bank. If not, the bank has
the right to debit from his account.

Greenwood v Martin’s Bank Ltd (1933) AC 51

The plaintiff’s wife forged his signature on his account in the defendant’s bank. Plaintiff knew about
the fact but did not inform the bank. Plaintiff later decided to tell the bank after he discovered that
his wife had been untruthful. Plaintiff brought an action against the bank to claim the amount, which
had been wrongfully debited in his account.

The court held that the plaintiff’s conduct in condoning the forgeries deprived the bank to sue the
customer and his wife in respect of the tort committed by the wife before her death.

Stolen Cheque
In cases of stolen cheque, the banker needs to be informed immediately by the customer.

Undated Cheque
S.20 holder of an undated cheque may fill up the correct date within reasonable time to honour the
cheque.

S.73 Bills of Exchange Act- a bill will not be invalidated if it is not dated.

Protection of the Paying Bank

Who is the paying bank?

It is the bank where the customer draws a cheque.

What is the duty of the paying bank?

The duty of the paying bank is to pay to the right person, according to the order of its customers.

What happens if the paying bank pays it to the wrong person?

The bank must be responsible for any loss that it is related to the bank’s breach of its duty.

The Bill of Exchange Act 1949 gives protections to the paying bank. The different sections i.e.:-
 1. S.59(1)- payment in due course
2. S.60- forged or unauthorized endorsement
3. S.82 – endorsement or irregular endorsement
4. S.80 - crossed cheques

S.59(1)
The paying bank will not be liable if he pays a cheque in due course.

What is payment in due course?

Payment made at offer maturity of the bill to the holder in good faith and without notice that his
title to the cheque is defective. (S.90)

S.60 Forged or unauthorized endorsement

The general principle is:-

1. A banker is expected to know his customer’s signature,

2. Therefore the banker will not be protected if he pays a cheque that is drawn on him where
the drawer’s signature is forged.

If the cheque is drawn by other person who is not his customer? In this situation, if the cheques have
a forged or unauthorized endorsement, the banker is protected under S.60. He will not be liable. The
banker must do so in good faith.

What is good faith?

S.95- if an act is done honestly, whether it is done negligently or not.

S.82
No endorsement or Irregular endorsement

When a bank pays a cheque, which is not indorsed or is irregularly indorsed, he will not be liable if
he has done so in good faith and in the ordinary course of the business.

Rubber Industry (Replanting Board) v Hong Kong Shanghai Banking Corporation (1957) MLJ 103

The plaintiff issued a cheque to one Toh but the cheque later fell into wrong hands.

One Lee Man Choi opened an account with the defendant in the name of Chorp Toh and the cheque
was paid into this account. Plaintiff brought an action against the bank. Bank sought protection
under S.82 of the Bill of Exchange Ordinance 1949.

Held: The defendant failed to prove that they had acted without negligence. Therefore, they are not
entitled to the protection of Section 82.

S.80
Crossed Cheque

In regards of crosses cheque, the banker will not be liable when there are alteration made on the
crossing of the cheque, if the banker pays the cheque in:
 1. Good faith
2. Without negligence
3. According to the crossing

Slingsby v District Bank (1932) 1KB 54

The plaintiff requested his solicitor to draw a cheque on their account on the defendant’s bank. The
cheque is payable to M/S John Prust & Co. the solicitor sent the cheque to four executors for
signatures. The cheque was returned to the solicitor. The solicitor then altered the cheque by
including- per Cumbering & Pots.

The solicitor then disappointed the cheque. The executor brought an action against the banker on
the ground that the banker was negligent when performing their duty.

The court held that the words ‘per Cumbering & Pots’s was unknown to the plaintiff. The bank was
not entitled to debit the plaintiff’s account as there was no breach of the drawer’s duty as it was not
usual presentations to draw line before or after the payee’s name.

Difference between S.60 and S.80

S.60 S.80

Applies only to forged endorsement Applies to crossed cheques

Payment must be in the ordinary course of Payment must be without negligence

business

S.59 requires payment in due course that is to S.79 requires payment to the true owner. A
the holder. A banker is deemed to have made banker is deemed to have paid the true owner
payment in due course if he fulfills S.60 (whether he has or has not) if he fulfills S.80
Protection of the Collecting Bank

Who is the collecting bank?

Collecting bank is the holder’s bank.

Who is the holder?

Holder is the person who presents the cheque to his banker for credit to his account.

What is the duty of the collecting bank?

To collect the amount from the drawer’s bank that is the paying bank.

Collecting bank may be liable if it fails to collect as instructed by the customer.

S.85(1) of the Bill of Exchange Act 1949 gives protection to the collecting bank where:

1. He has done it in good faith

2. Without negligence
3. Receives payment of a cheque for a customer or, having credited the customer’s account
receives payment for himself and the customer had no title or a defective title to the
cheque.

Woodlands Development Sdn Bhd v Chartered Bank,PJTV & Densum (M) Sdn Bhd (Third Party)
(1986) 1MLJ 84
The plaintiff was the payee of three cheques. The first cheque was crossed and the last two were
crossed with the words “Account Payee”.

The director of the plaintiff handed these cheques to Richard Seow and Yap Yoke Min to open an
account in a Petaling Jaya Bank in the name of the plaintiff.

They persuaded the manager of the defendant bank to collect the amount for the third party. The
plaintiff brought an action against the bank and the third party.

The court held that the defendant bank was negligent in collecting cheques for the third party. The
defendant bank was ordered to return the amount of m