Page 106 - DMGT407Corporate and Business Laws

Unit 4: Law of Negotiable Instruments

material alteration of the cheque. (iii) The banker, in whose favour the cheque has been crossed Notes
specially, may again cross it specially in favour of another banker. The latter bank in such a case
acts as the agent of the former.

Self Assessment

Fill in the blanks:
15. A cheque that is not crossed is a called an ………………cheque.
16. ………………Crossing implies the specification of the name of the banker on the face of
the cheque.

4.9 The Paying Banker

The ‘paying banker’ is a term used to denote the position and duties of the drawee-banks in
paying the cheques of their customers. Thus, ‘paying banker’ is a banker upon whom a cheque
is drawn.

4.9.1 Payment in Due Course

What is a payment in due course is defined in s.10 and has been given above. The following
conditions must be satisfied before a payment of a negotiable instrument can be called as a
payment in due course:

1. Payment must be in accordance with the apparent tenor of the instrument: It is necessary
that a payment to constitute a payment in due course should be made at or after maturity.
A payment before maturity is not a payment in due course. For example, payment of a
post dated cheque is not a payment in due course.
2. Payment must be made in good faith and without negligence: When there exists suspicious
circumstances and the paying banker fails to make any enquiry as to them, the payment is
not in due course. So payment is not in due course, where a banker makes payment on a
cheque materially altered, without exercising due care.
3. Payment must be made to the person in possession of the instrument: A payment is not a
payment in due course if it is made to a person entitled to receive it. A thief is not said to
be in possession of the instrument. Thus, in the event of suspicious circumstances, payment
should not be made without drawer’s confirmation.
4. Payment must be made under circumstances which do not afford a reasonable ground for
believing that a person is not entitled to receive payment of the amount mentioned therein:
So, where a peon of a company presents a cheque for a big amount on behalf of the
company, which is contrary to the past experience, the banker should conduct proper
enquiry before making payment on such a cheque.
5. Payment must be made in money only: Payment must be made in money only unless the
payee agrees to accept payment in some other form (e.g., bill of exchange or promissory
note). Money includes bank notes or currency notes but excludes cheque, bills of exchange,
promissory notes and goods.

Thus, under s.10, payment in due course means payment in accordance with the apparent tenor
of the instrument made in good faith and without negligence.

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