CHEQUES

• Definition
•Types of Cheques
•Crossings of Cheques
•Alteration on Cheques
•Protection of Paying and Collecting Banks
CHEQUES
 The governing statute : the Bills of Exchange Act
1949

Definition
 It is a bill of exchange drawn on a banker
payable on demand (Sec 73(1) BOEA).
Characteristics
i) It is an unconditional order in writing;
ii) It is issued and signed by the drawer;
iii) It is drawn on a banker (drawee bank/paying
bank).
iv) It orders the drawee/paying bank to pay a
sum certain in money on demand.
v) It is drawn in favour of a specified person
(payee) or to his order or in favour of a
bearer.
Categories / Types of Cheque
 Undated cheques
- The cheque bears no date. It is still valid.
- s. 12 &20 allow a holder of an undated cheque to fill in the
true date of its issue but must do so within a reasonable time.
 Overdue or stale cheques
- overdue cheques : cheques which has been in circulation for
an ‘unreasonable length of time’ (s.36(3)).
- stale cheques : cheques which has been in circulation for a
long time, generally after the expiry of 6 months or more from
its date.
 Ante-dated and post dated cheques
- ante-dated : cheque which bears a date earlier than the date
of actual issue.
- post-dated : cheque which bears a date in the future.
Crossings of Cheques
Objectives: to minimise the chances of fraud by
conveying instructions that payment shall only be made
only to, or through a bank or other instructions as to the
manner of payment.
A crossing cannot be altered by anyone in any way.
(s.78)
Types of crossings:
1. General Crossing Statutory crossings
2. Special Crossing
3. Not Negotiable Crossing
4. Account Payee Only Crossing
General Crossing
S.76(1): it consist of two parallel transverse lines
drawn across the face of the cheque.
Effect: the paying banker can only pay the amount of
the cheque to a collecting banker.
Bank cannot pay cash for the cheque across the
counter, as in the case of an open cheque.

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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.
Effect: the paying banker must pay the amount of the
cheque only to the collecting banker named in the
crossing.
Thus, the negotiability of a cheque crossed specially is
restricted in that such a cheque can only be negotiated to
some person who is a customer of the bank to whom it
is crossed.
This makes the cheque safer than a general crossing.
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Not Negotiable Crossing
S.76 permits a person crossing a cheque to add the
words “Not Negotiable”.
The effect of this crossing is set out in s.81.
By adding the words ‘Not Negotiable” to a crossing,
the cheque loses the ull character of negotiability but
remains transferable.
It can be transferred, but the person taking it
(transferee), however honestly and for value, cannot
obtain a better ttle than that of the person from whom
he receives it.
Wilson and Meeson v. Pickering [1946] KB 422
Wilson and Meeson v. Pickering
[1946]
W drew a cheque in blank crossed ‘Not Negotiable’.
His clerk, who was supposed to fill in the amount and
the name of the payee, inserted a sum in excess of her
authority and delivered it to P in payment of her own
debt.
It was held that since the clerk had no title to the
cheque, P had no better title and W was therefore, not
liable on it.
Account Payee Only Crossing
The object is to minimise 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.
A collecting banker is guilty negligence and liable to
the true owner for the amount of the cheque, if he
disregards the crossing.
Woodland Development Sdn Bhd v. Chartered
Bank; PJTV Densen (M) Sdn Bhd (Third Party)
[1986] 1 MLJ 84
Woodland Development Sdn Bhd v. Chartered Bank;
PJTV Densen (M) Sdn Bhd (Third Party) [1986]
 The plaintiff 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 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 the defendant bank liable for negligence in collecting
the two ‘Account Payee’ cheques for a third party who was not the
payee named on the cheque.
Alterations on 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
of the cheque.
Apparent Alteration
 Woollattt v. Stanley (1928) 138 LT 620 : Salter J: ‘if the
intending holder on scrutinizing the document with
reasonable care, would observe that it has been altered,
then that constitutes an apparent alteration.’
 Where a material alteration is apparent, parties liable on
the bill at the time of such alteration will be discharged but
the person who made the alteration and all subsequent
parties who took it will be bound by it as altered (s.64(1)).
 A $20 B $20 C$200 D
$200 E
 E can look to C and the subsequent indorser D for the $200
he gave for the cheque. But he has no right against A and B
who did not make or authorise the alteration.
Non-Apparent Alteration
The alteration is executed so cleverly that it is not
visible on reasonable scrutiny.
In addition to the right to enforce payment in
accordance with the principle stated in apparent
alteration, a holder in due course has the right to
enforce it according to its original tenure (Proviso to
s.64(1)).
$20 $20 $200 $200
A B C D E
E can sue C or D for the $200 or sue either A or B for
the $20 (the original tenure)
Protection of the Paying Banker
Who is the paying bank?
 Is the bank, which issue cheques to its customers.
 When the customer draws a cheque, the PB (also
known as the drawee bank) is under a duty to pay
the amount of the cheque to the right person
according to its customer’s (drawer’s) mandate.
RISKS
 If the PB pays the amount of the cheque to the
wrong person, the bank must bear the loss for its
breach of duty towards its customers because of:
 Non-compliance with the mandate of its customer;
 Conversion to the true owner of the cheque.
 The Bills of Exchange Act 1949 provides the paying
banker some protection against loss of the right to debit his
customer’s account when he pays cheque to the wrong
person.
1. Payment in due course (s.59) – payment is made at or after
maturity of the bill.
2. Forged or unauthorised indorsement (s.60)
3. No indorsement or irregular indorsement (s.82)
4. Crossed cheques (s.80)
 S.80 protects a banker if he pays:
a) In good faith;
b) Without negligence and
c) According to the crossing
Protection of the Collecting Banker
 CB is the bank, which collects the amount of the cheque
from the paying bank (Drawee bank) on behalf of its
customers (I.E the payee or the holder of the cheque).
 The CB is under a duty to collect the amount and credit
its customer’s account with such amount.
RISKS
A CB may be liable on two grounds:
 To its customers for breach of contract due to the
failure of the CB to collect the amount when it was
instructed to do so.
 To the true owner for wrongful conversion when the CB
improperly collects on behalf of its customers who was
not entitled to the money.
Protection under s.85(1)
To enjoy the benefit of s.85(1), the collecting banker
must be able to prove the following:
1. That he acted for a customer
2. That he acted in good faith
3. That he acted without negligence
 Termination of a Banker’s Authority
to Pay
1. By countermand of payment
Curtice v. London, City and Midland Bank [1908]
2. By notice of the customer’s death
3. By notice of the customer having become insane.
4. By service of garnishee order.
5. Where there is defect in the presenter’s title.
6. Knowledge that the customer has committed an act
of bankruptcy.
7. Knowledge that the customer, in drawing the cheque,
is intending to commit a breach of trust where the
funds affected are trust funds.
8. When the customer assigns the credit balance of his
account to another person.
9. When the customer has insufficient funds to cover
the amount of the cheque.
10. On a receipt of a notice from the customer closing
his account.