Section 4(1) of the Kenyan Cheque Act provides that where a banker, in good faith and in the ordinary course of business, pays a prescribed instrument ( a cheque or draft) drawn on him to a banker, he does not in doing so incur liability by reason only of absence of or irregularity in endorsement of the instrument. The statutory protection is available to a paying banker when he pays the cheque in the following circumstance:
Forged endorsement: where a banker pays against a cheque drawn on him in good faith and in ordinary course of business, he can debit the account of such a drawer with the amount so paid even though the endorsement of payee subsequently proves to be forged. A banker who pays a crossed cheque is also protected against a forged endorsement provided he has acted without negligence.
The cheque act provides that a paying banker paying a cheque drawn on him in good faith and in ordinary course of business which is not endorsed or irregularly endorsed incurs no liability because of absence or irregularity of endorsement
NOTE: the paying banker receives ‘no protection’ if it pays a customer’s cheque when his signature has been forged. This is because the banker has specimen signature of the customer.
PROTECTION OF COLLECTING BANKER
Section 3(2) of Kenya Cheque Act affords protection to the collecting banker who, in good faith and without negligence and in ordinary course of business;
- Receives payment for the customer of a prescribed instrument to which the customer has no title or has defective title; or
- Credits the customer’s account with the amount of a prescribed instrument to which the customer has no title or has a defective title.
Negligence of collecting Banker
The following acts have been held amounting to negligence on the part of the collecting banker:
- Opening a current account for someone without making proper enquiries
- Collecting payment for a customer of a cheque which is made out the customer’s employer
- Paying a cheque into customer’s private account which is payable to him in an official capacity
- Where a customer presents a cheque crossed “account Payee” and he is not the payee named.
Under Section 84 (1) of the Bill of Exchange Acts, a promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or bearer.
Characteristic/Elements/Essential of Promissory Note
- It is an unconditional written promise made by a person to another
- It must be signed by the maker
- It contains a promise to pay a sum certain in money.
- The sum is payable on demand or at a fixed or determinable future time.
- The sum is payable to a specified person, his order or the bearer
Under Section 85(1) of the Act, a promissory note remains incomplete until it is delivered to the promisee. If a note is drawn by two or more persons, all are jointly and severally liable on it.
Once a note is delivered to the promisee, it may be negotiated to other persons or it may be discounted.
A promissory note differs from a bill of exchange in that: –
- It is a promise to pay made by the debtor
- It does not require presentation for acceptance nor does it require acceptance. However, it is a negotiable instrument capable being negotiated by one person to another in commercial transactions.