CHEQUES
Under Section 74(1) of the Bill of Exchange Act, a cheque is a bill of exchange drawn on a banker, payable on demand. It is a negotiable instrument negotiable by delivery or by endorsement and delivery. It differs from a bill of exchange in various ways: –
1. It can only be drawn on a banker
2. It is payable on demand
3. It does not require acceptance
4. Non-presentation does not discharge it
5. It is less negotiable
6. It may be crossed generally or specially
7. Notice of dishonour is not necessary
TYPES / CLASSIFICATION OF CHEQUES
Cheques may be classified on the mode of payment and to whom payable:
1. Bearer cheque: This is a cheque whose proceeds are payable to the holder.
2. Order Cheque: This is a cheque whose proceeds are payable to specified person or his order.
Whereas a bearer cheque is negotiable by delivery an order cheque is negotiable by endorsement or delivery.
3. Open Cheque: This is a cheque whose proceeds are payable across the counter.
4. Crossed Cheque: Is a cheque that contains two parallel transverse lines on its face with or without account. A crossing is an instruction to the banker not to pay the proceeds across the counter.
TYPES OF CROSSING
A cheque may be crossed generally or specially:
1. General Crossing: Consist of two parallel transverse lines on the fact of the cheque
with or without the words “and Co.” “Account payee” “Not negotiable” etc. A cheque crossed generally may be crossed specially by the drawee,
2. Special Crossing: Consists of two parallel transverse lines of the face of the cheque with the name of the banker in told.
BANKER-CUSTOMER RELATIONSHIP
There is a simple contractual relationship between the banker and customers. It is a debtor-creditor relationship which imposes upon the parties certain legally binding obligations.
DUTIES OF THE CUSTOMER
1. Duty of Care: The customer is bound to the exercise reasonable care when drawing cheques to guard against alterations. The banker is not liable for any loss arising if the customer has failed to exercise reasonable care.
In London Joint Stock Bank v. Macmillan & Arthur, A clerk of M draw a cheque for M‟s is signature and indicating the amount payable as £2 in figures but not in words. M signed the cheque, the clerk added 2 figures to the two to make it £120 and stated the amount in words. The customer subsequently sued the banker for the loss. It was held that the bank was not liable as M had failed to exercise reasonable care.
2. Notice of irregularities: The customer is bound to notify the banker of any irregularities affecting the accounts e.g. forgeries or unauthorized which the customer is estopped from relying on the irregularity.
As was the case Greenwood v. Martins Bank where a husband had noticed that his wife had withdrawn monies from his account by forging signature but to avoid publicity, he did not notify the bank. Subsequently his wife shot herself dead. He then notified the bank of the irregularities. The House of Lords hold that the bank was not liable as the customer had failed to notify if of the irregularity. He was estopped from relying on it.
DUTIES OF THE BANKER
Paying Bank: This is the banker on which the cheque is drawn. It is the banker liable for the amount.
Collecting Bank: This is the bank in which the cheque is deposited for payment.
1. Duty of Care: The banker is bound to exercise reasonable care and skill in his dealings with the customer. The standard of care and skill is that of a reasonably competent banker. If the banker fails to exercise such care and skill, the customer has an action in damages for any loss arising for professional negligence.
2. Professional Advice: The banker is bound to give the customer professional adviceon request. He is bound to give advice on investments as and when requested failing which he is liable in damages.
3. Duty to Honour Cheques: The banker is bound to honour all cheques drawn by the customers provided: –
a. The cheque is complete and regular on the face of it
b. The customer’s account has sufficient funds
c. The cheque is presented at a reasonable hour on a business hour and business day.
d. The payee identifies himself to he satisfaction of the banker.
e. If a banker fails to honour a cheque in breach of this duty, the customer has an action in damages.
4. Duty of Secrecy: The banker is bound to maintain confidentially in his dealings with
customer. He must not discuss to 3rd parties any information which comes to him in the course of his dealings with the customer. The duty of secrecy was laid down in Tournier
v. National Provincial and Union Bank of England which the English Court of Appeal insisted of the upholding of the duty. However the court was emphatic that the duty may be qualified in certain circumstance where personal information relating to the customer
may be discharged to 3rd parties e.g.
a. Where disclosure is provided for by the law
b. Where the banker has the customer convent to disclose
c. Where disclosure is necessary in the public interest
d. What it is necessary to protect the banker
5. Duty not to pay without Authority: The banker must not pay any monies out of the customer’s account without his express or implied authority failing which he is liable in damages for breach of duty. However, banker losses his authority to pay in various ways: –
a. Countermand of payment: This is an express instruction by the customer to his banker not to honour a particular cheque
b. If the banker has notice of the customer’s death
c. If the banker has notice of the customers‟ unsoundness of mind
d. If the banker has notice of presentation of a bankruptcy petition against the customer in court.
e. If the cheque is irregular e.g. amounts in words and figures do not tally.
f. If the customer’s account has been frozen by a court order.
g. If the cheque is presented before time (post dated cheque) or after six months (stale cheque)
h. If the payee has no title thereto
i. The customer’s account has insufficient funds
j. The customer has since closed his account.
