1. Definition of cheque.

Cheque is one of the types of negotiable instruments. Negotiable

instruments serve as a medium of credit transactions. Negotiability is
therefore a form of transfer of property (ownership) from one person to
another in a document evidencing a contractual obligation to pay money. This
change of ownership is effected by mere delivery or by the transferor signing
on the back of the document (indorsement) plus delivery in such a way that
the transferee, who takes it in good faith and for value, obtains a title superior
to that of the transferor and entitles him to sue in his own name as the
absolute owner. Instruments acquire negotiability adhere by statute or
mercantile custom. Instruments negotiable by statute include bill of exchange,
cheques and promissory notes.
In section 73 of the Bills of Exchange Act 1949, cheque is defined as a
bill of exchange drawn on a banker payable on demand. It is the most
common type of bills of exchange. Bank is the banker that promise will pay
the sum of money specified on the cheque. The term payable on demand
does not mean that the cheque must be cash immediately. It is mean that if
the cheque is presented on the date it bears or within a reasonable time after
that date, payment will be made. Then, a cheque must be presented for
payment within six months from the date issue, otherwise it is known as a
steal cheque and will be not be honour by banks. In the case of post-dated
cheques they are only payable at a future time such as at the date stated on
the cheque of within six months after that date.
In a simple word, cheque can be defined as an unconditional order in
writing, addressed by one person (drawer) to another (banker or drawee),
signed by the person giving it. (drawer), requiring the person to whom it is
addressed (drawee bank) to pay on demand a sum certain in money to or to
the order of, a specified person, or to bearer under section 73(1) read with
section 3(1) of the Bills of Exchange Act 1949.

2. What are the characteristics of a valid cheque?

Cheque is an important means of payment. Cheque is used for paying
a large sum of money. . It is the most widely used tool for drawing money from
the bank. Cheque is used by the buyer or debtor to pay the due amount of
goods to his seller or creditor out of his bank deposit. Cheque is a written
order issued by a depositor to a particular bank directing it to pay a certain
sum of money to a certain person or to the bearer of the cheque. There are
several characteristic of a valid cheque.
The first characteristic is the cheque is an instrument in writing. A
cheque must be in writing. It can be written in ink pen, ball point pen, typed or
even printed. Oral orders are not considered as cheques. The characteristic of
cheques are subject to technical specifications which must be adhered to if
businesses decide to print on their own cheques. A specimen of a customer
printed cheque must be tested for automation and approved for use by your
bank.
The second characteristic is cheque contains an unconditional order on
a specified banker where the drawer has his account. The drawer or the
depositor should not lay down any condition in the cheque.
The third characteristic is the cheque is drawn by a customer on his
bank. A cheque is always drawn on a specific bank mentioned therein. A
cheque drawn by stranger is of no meaning. Cheque book facility is made
available only to account holder who are supposed to maintain certain
minimum balance in the account. The drawer issues cheque directing to a
particular bank having deposit in it to pay the amount of cheque.
The fourth characteristic is the cheque is the cheque must be signed by
customer. A cheque must be signed by customer (Account holder). Unsigned
cheques or signed by persons other than customers are not regarded as
cheque.

The fifth characteristic is payable on demand. The amount of cheque

must be paid by the bank as soon as it is presented at its counter. If cheque is
made payable after the expiry of a certain period of time specified, then it will
not be a cheque.

3. Explain the various types of cheques.

According to section 73(1) of Bills of Exchange 1949, a cheque is a bill
of exchange drawn on a banker payable on demand. Therefore, the law
relating to bills of exchange payable on demand would apply to cheques. It is
unnecessary for a cheque to contain the words on demand since, by virtue of
section 10(1) (b) of the said Act, a bill is payable on demand if no time for
payment is written on it. There are various types of cheques such as undated
cheques, overdue or stale cheques and ante dated and post-dated cheques.
According to section 3(4) (a), a cheque which is not dated is a valid
cheque. Bankers need not honour undated cheques. However, under section
20 of the bills of exchange act 1949, a holder of such a cheque can fill up the
correct date within a reasonable time and the cheque can be honoured. The
authority is not limited to the person to whom the blank instrument is delivered
and it may be filled up by any holder. The authority of a holder who takes an
incomplete instrument to be filled up as a complete bill is the same as that of
the person to whom it was originally delivered. If indeed a party lent his blank
cheque to another to enable the other to overcome the latest financial
difficulties, it would be reasonable to anticipate that the cheque would in all
probability been negotiated and so could be accepted by an innocent holder
or bearer for value. Besides, it is well settle law that if a customer signs a
cheque in blank and leave it to a clerk or other person to fill it up, he is bound
by the instrument as fill up by his agent. The drawer could not then contain
fraud. The authority to fill up the bill is irrevocable if given for valuable
consideration.
An overdue cheque is one which has been in circulation for an
unreasonable length of time. According to section 36(3), a bill payable on
demand is deemed to be overdue within the meaning and for the purpose of
this section, when it appears on the face of it to have been in circulation for an
unreasonable length of time. What is an unreasonable length of time for this
purpose is a question of fact. A stale cheque is one which has been in
circulation for a long time. According to the banking practice in Malaysia
currently, a stale cheque is one which bears a date which is half a year old
which is six months or more have expired since the date of the cheque.
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A post-dated cheque is one which bears a date in the future. It is,

strictly speaking, not a cheque since it is not payable on demand.
Nevertheless, it is still a valid cheque since section 13(2) state that, a bill is
not invalid by reason only that it is an ante-dated or post-dated, or that it bear
date on a Sunday. Bankers do pay post-dated cheque if they are presented
on or after the date so stated on the cheque. If the bankers pay the cheque
before their respective due dates, he cannot debit the customers accounts if
the customers stop the cheque or if they die before the respective date of the
cheque. The banks would then have to bear the losses. Therefore, in practice,
if a customer present a post-dated cheque for payment and the date is not
due yet, the banker would return the cheque to the customer in order that he
may present it later when it becomes due.

4. Explain the differences between bill of exchange and cheque.

A bill of exchange is a form of a written promise that the person who
takes the bill will be paid the amount stated in the bill when he presents it at
the proper place and time. The person who draws the bill, for example the
person who writes the order to pay, is called the drawer. The person to
whom the order to pay is addressed is called the drawee. The person to
whom payment is to be made is called the payee. The payee so named in
the bill may transfer his right to receive payment to another person by
negotiating the bill. The payee does so by indorsing it with his signature and
handing it to the transferee who then becomes the holder of the bill.
A cheque is defined in section 73 of the Bills of Exchange Act 1949 as
a bill of exchange drawn on a banker payable on demand. Cheques are the
most common types of bill of exchange. The promise in the cheque is that the
banker will pay the sum of money specified on it. The term payable on
demand does not mean that the cheque must be cashed immediately. The
term simply means that if the cheque is presented on the date it bears or
within the reasonable time after that date, payment will be made. By custom,
a cheque must be presented for payment within six month from the date of
issue, otherwise it is known as a stale cheque and will not be honoured by
banks. In the case of post-dated cheque, they are only payable at a future
time, for example at the date stated on the cheque or within six month after
the date.

5. What is the purpose of crossing of cheque?

The Bills of Exchange Act 1882 makes provision for the crossing of
cheques, and this provision does not apply to any other type of bill of
exchange. The effect of a crossing is that the cheque may be met only by
payment to a banker, and cannot be cashed over the counter of the paying
bank. The object of this is that it is thus possible for the drawer of the cheque
to trace it after it has been paid through a bank account, to a known holder.
Also, it gives more time to countermand payment. The crossing does not
initially affect the negotiability of the cheque, nor does it mean that the cheque
must be endorsed.
The purpose of crossing a cheque is to instruct that payment can only
be made through a bank or that it must be paid in a certain manner such as
through an account. Drawers crossed their cheques in order to ensure that
even if the cheques fall into the wrong hands, it would be difficult for such an
authorized persons to obtain payment on the cheques. For instance, a
crossed cheque must be cleared through an account and this makes it difficult
for the wrong party to obtain payment and it also enables the recipient to be
traced.

6. Discuss types of crossings available under the Bills of Exchange Act

1949.
There are two types of crossing available under the Bills of Exchange
Act 1949 which is the general crossing and special crossing. A general
crossing is made by drawing across the face of the cheque two parallel lines
with or without the words and company, or any abbreviation thereof, for
example, & Co.. The original intention was that the payee could insert the
name of his bank, making it a special crossing, but the bank usually does this
for him by stamping its name on the crossing. The crossing must appear on
the face of the cheque and it is desirable that it should be across the middle of
the document. The effect of the general crossing is the paying banker can
only pay the amount of the cheque to a collecting banker. This can avoid an
authorized person to get payment across the banks counter because since it
can only be cashed using an account, the loss might have been discovered
meanwhile and payment stopped.
In a special crossing, the name of a particular bank is written between
the lines of the crossing. According to section 76(2) provides that a crossing is
special when the name of the banker is written between the parallel
transverse lines or it is written across the face of the cheque without the lines.
The effect of the special crossing is the paying banker can only pay the
amount of the cheque to a collecting banker named in the crossing. This can
avoid an authorized person to get payment across the banks counter
because since it can only be cashed using an account, the loss might have
been discovered meanwhile and payment stopped.

7. Discuss the protections available to the paying bankers.

This is where a customer draws a cheque on his banker, that banker is
known as the paying banker or drawee banker. The paying bankers duty is to
pay to the right person according to his customers (the drawers) mandate. If
banker pays to the wrong person, he must bear the lost. Therefore, in making
payments, the paying banker must ensure that he would not be liable for noncompliance with the mandate of the customer and for conversion as regards
the true owner of the cheque.
In the Bills of Exchange Act 1949 gives the paying banker some
protection against lost of the right to debit his customers account when he
pays a cheque to the wrong person. But before the banker can avail himself of
this protection there have certain conditions must be fulfilled. In the section 59
of the Bills of Exchange 1949, a banker is not liable if he pays a cheque in
due course. Payment in due course means the payment made at or after
maturity of the bill to the holder in good faith and without notice that his title to
the cheque is defective. For example Ahmad draws a cheque on Maybank
payable to Abu. On receiving the cheque Abu indorses it in blank thereby
making the cheque payable to bearer. Abu misplaces the cheque which is
then found by Ali. Ali presents it for payment at Maybank which pays the sum
stated in the cheque. Maybank would not be liable even if Abu sues the bank
for conversion. This is because Maybank has made payment to the holder in
good faith and without notice of the defect in title. The bank has discharged
the cheque by payment in due course in accordance with section 59 of the
Bills of Exchange act 1949. It can therefore debit Ahmads account.
The other protection is accorded by section 60 of the Bills of Exchange
Act 1949. That is, if the banker pays in good faith and in the ordinary course
of business a cheque drawn on him which bears a forged or unauthorized
indorsement he is not prejudice by the forgery. For example Lily draws a
cheque on Maybank in favour of Tina, and it is stolen by Lina who forges
Tinas indorsement and negotiates it to Fina who intern negotiates it to Peah
who obtains payment from the bank. Now, if Maybank has paid in good faith in
the ordinary course of business, the bank would not be prejudice by the

forgery. The bank can debit Lilys account for the amount of the cheque.
Under section 60, it is not liable to Tina who is the true owner of the cheque.
Another protection is afforded to paying bankers in section 82 of the
Bills of Exchange Act 1949. The paying banker is protected if he pays a
cheque which is not indorsed or is irregularly indorsed in good faith and in the
ordinary course of business.
The other protection is available to a paying banker is given under
section 80 of the act. However, this protection is limited to crossed cheques
only. In other words if the paying bankers pays a crossed cheque in good
faith, without negligence and according to the crossing, he is not liable. For
example Ani draws a cheque on Maybank in favour of Ati in order to repay a
friendly loan. On receiving the cheque, Ati crosses it generally. The cheque is
stolen by Yana who goes into BSN and pretending to be Ati, opens an account
in Atis name. BSN presents the cheque to Maybank who pays in good faith
and without negligence. Maybank is not liable to Ati by virtue of section 80 of
the act.
The example case is Slingsby v District Bank. The plaintiff requested
their solicitor, Cumberbirch a partner in M/S Cumberbirch & Potts, to draw a
cheque on their account on the defendants bank payable to M/S John Prust &
Co. the cheque was drawn with a gap between the payees name and the
words or order. After it was signed by the plaintiffs, Cumberbirch inserted the
words per Cumberbirch & Potts. Cumberbirch indorsed the cheque
Cumberbirch & Potts and obtained payment. The court held that the
indorsement was not in accordance with the mandate (the proper indorsement
should have been John Prust & Co per Cumberbirch & Potts) , and the bank
could not therefore rely on the protection given in the Bills of Exchange Act
1949.

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8. Discuss the protections available to the collecting bankers.

This is where the banker to whom a holder of a cheque presents the
cheque for the credit of his account is called the collecting banker. The duty of
such a banker is to collect the amount stated in the cheque from the drawers
bank (the paying banker). A collecting banker may become liable to his
customer for breach of contract which is where he fails to collect when
instructed to do so. He may be also liable to the true owner for wrongful
conversion where he collects improperly on behalf of a customer who is not
entitled to the money. This is under the section 85 of the Bills of Exchange Act
1949 which affords some protection to the collecting banker.
In order for the banker to be protected by this provision, firstly, it is
must be proven that the banker acted for a customer. It was held that in
Oriental Bank of Malaya v Rubber Industry (Replanting) Board, that a
customer of bank is one who has an account with the bank. The duration of
the account is immaterial.
Second element is, he acted in good faith. Even though a thing may be
done negligently, if it is done honestly, such thing has been done in good faith.
This is under section 95 of the Bills of Exchange Act 1949 that reads, a thing
is deemed to be done in good faith, within the meaning of this Act, where it is
in fact done honestly whether it is done negligently or not.
Third element is, he acted without negligence. Thus, even if the banker
had acted in good faith, if he has been negligent, the banker would not be
protected under this section. The cases which illustrate the operation of this
provision are The Rubber Industry (Replanting Board) v Hong Kong and
Shanghai Banking Corporation. The fact of the case is the plaintiff issued an
account payee only cheque for $6762.33 in favour of one Toh Whye Teck.
Somehow, the cheque fell into wrong hands. Subsequently one Lee Man Choi
opened an account with the defendant bank in the name of Chop Toh Whye
Teck and the cheque was paid into this account. In an action taken by plaintiff,
the defendant bank sought protection under section 82 of the Bills of
Exchange Ordinance 1949. The court held that inter alia, that the defendant
bank had not discharge the onus of proving that they had acted without
negligence and were not entitled to the protection of section 82 of the Bills of
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Exchange Ordinance 1949, and were liable to the plaintiffs for damages for
conversion of the cheque.

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9. Explain the followings :

apparent alteration

non-apparent alteration

If a cheque has been materially altered without the drawers authority the
drawer will be discharge from liability. This means that if the bank pays on a
cheque which has been materially altered, the bank cannot debit the drawers
account for the amount of the cheque. Examples of materials alteration are
alteration on the date, amount, name of payee or any crossing or any change
which alters the business effect of the cheque.
According to section 84(2), in particular the following alterations are
material namely any alteration of the date, the sum payable, the time of
payment, the place of payment, and where a bill has been accepted generally,
the addition of a place of payment without the acceptor assent. In section
64(1), state that where the bill of acceptance is materially altered without the
assent of all parties liable on the bill, the bill is avoided except as against a
party who has himself made, authorize or assented to the alteration, and
subsequence indorses which provide that where a bill has been materially
altered, but the alteration is not apparent, and the bill is in the hands of the
holder in due course, such holder may avail himself of the bill as if it had not
been altered, and may enforce payment of it according to its original tenor. In
other words, where the material alteration is apparent, the parties liable on the
bill at the time of such alteration will be discharge. However where the person
who made, authorize or assented to the alteration and all subsequence
parties who took it will be bound by it as altered.
On the other hand, where the material alteration is not apparent, the
holder in due course can enforce payment of the cheque according to its
original tenor. It is part of the implied contract between banker and customer
that a customer must exercise due care in drawing cheque so as not to
facilitate fraud. Thus, in due to the customers negligence, dishonours holder
alters the amount in the cheque and obtains a greater sum from the bank
without the alteration being apparent, the banker is protected and can debit
the customers account for the full amount of the cheque.
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The relevant case is the case of London Joint Stock Bank v Macmillan and
Arthur, the fact of the case is a partner in a firm drew a cheque for 2 sterling
pounds payable to bearer. The sum was stated in figures but not in words. A
clerk of the firm misappropriated the cheque and altered the figures to read
120 sterling pounds and wrote in the appropriate words before cashing the
cheque at the bank. The court held that the bank could debit the firms
account with the 120 pounds. The partner had neglected to take all
precautions. By leaving blank the space where the amount should have been
stated and also by leaving blank space on either side of the figure 2 there
was a clear breach of duty which the customer owed to the banker.

10. Discuss the customers duty of care against fraudulent alteration.

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The customer, for his part, owes the bank a duty of care in the way he
draws the cheque. Where the amount of a cheque is altered and the cheque
is met by the bank, the position will be, if the alteration was apparent, the
bank must bear the loss. If the alteration was not apparent but was not
facilitated by negligence on the part of the customer in drawing the cheque,
then the customer will be chargeable with the original amount but the bank
must bear the excess. So far, the position is comparable to the general rule of
bills of exchange. However, if the alteration was not apparent and was made
possible through the careless way in which the customer drew the cheque,
then the loss will fall on the customer.
In London Joint Stock Bank v. Macmillan & Arthur (1918), a bearer
cheque was drawn for 2 in figures, but with sufficient space for this to be
changed to 120 without the alteration being apparent, and without the
amount being written in words at all, so that a fraudulent clerk was able to
write in one hundred and twenty pounds. It was held that the customer had
to accept the full charge of 120 when the cheque was met. The case of
Slingsby v. District Bank (1931) may also be noted in this context. The drawer
left a gap between the inserted name of the payee and the printed words or
order, into which gap one Cumberbitch inserted the words per Cumberbitch
and Potts. He then endorsed the cheque and obtained payment. It was held
that this did not constitute negligence on the part of the drawer so that the
bank had to bear the loss.
Acting in excess of authority created by the relationship can give rise to
criminal liability, as in the case of R. v. Charles (1976). C had authority to
overdraw his account up to 100 and he also had a cheque card which
contained an undertaking by the bank that any cheque not exceeding 30
would be honoured subject to the usual conditions. In the course of one
evening at a gambling club, C drew 25 cheques for a total of 750. He was
convicted under the Theft Act 1968 of dishonestly obtaining a pecuniary
advantage for himself by deception. In the course of judgement it was said
that, where the holder of a cheque card presents the card together with a
cheque made out in accordance with the conditions of the card, it is open to
the court to infer that a representation has been made by the drawer that he
has the authority as between himself and the bank to use the card in order to
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oblige the bank to honour the cheque. If that representation is false and the
payee has been induced to accept the cheque by reason of that false
representation, the drawer has thereby obtained a pecuniary advantage by
deception.
Greenwood v. Martins Bank Ltd (1933) illustrates how the bank will be
protected in the event of the customers negligence. Greenwoods wife had
been drawing money from his account by forging his signature on his
cheques. In order to protect his wife, he did not inform the bank. The wife later
committed suicide and he then decided to sue the bank for the return of the
money. It was held that the husband was under a duty to disclose what had
happened, and as he had failed to do so his conduct precluded him from
alleging the forgery. An important case showing the limit of the customers
duty to his bank was decided by the Privy Council in Tai Hing Cotton Mill v.
Ling Chong Hing Bank (1985), where the bank had over a period of time paid
out on cheques that had been forged by an employee of the appellant
company. The total involved was in excess of $5 million and the fraud had
continued for some considerable time. The bank argued that the appellant
customer company had been negligent because they had received bank
statements over the period which showed that the bank had been paying out
on the forged cheques.

REFERENCES

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