Download - Commercial Law Negotiable Instruments Mann Essentials of Business Law pp 829 – 833 & pp 838 - 848
Commercial Law
Negotiable Instruments
Mann “Essentials of Business Law”
pp 829 – 833 & pp 838 - 848
Commercial Law
Payment Of ChequeA cheque is either payable To order - requires drawee to pay to or to order
of a person specified (s. 21) or To bearer
can be paid to whoever holds the cheque this is the default position if not payable to
order (s. 22) Only 2 choices!
Commercial Law
Converting from Order to Bearer (s23)A cheque may be converted from payable to bearer to payable to orderWhere the only, or last , indorsement of a cheque
requires the drawee institution to pay to bearer, the holder may, convert the cheque into a
cheque payable to order by changing the indorsement.
Commercial Law
Account Payee Only A direction to pay only to the bank account of the
payee named on the cheque Has no legal status under Cheques Act Operates as a cheque payable to order Puts collecting bank on notice to make further
enquiries before paying someone other than named payee
Commercial Law
Signature You must have signed a cheque, either as
drawer or indorsee, to be liable on it (s31)
Commercial Law
Unauthorised Signatures (s32) Where any signature is placed on a cheque
without authority then it is inoperative unless The person against whom the signature is
being asserted is estopped from denying its genuineness
It has been ratified by the alleged signatory But it operates as a valid signature in favour of
any person who takes the check bona fide for value and without notice of the defect
Commercial Law
Holder in Due Course (s3) A person is a holder in due course if
the cheque was transferred by negotiation to the holder and,
at the time when the holder took the cheque, it was; Complete and regular on the face of it Not a stale cheque; and Not crossed “not negotiable”.
And took the cheque in good faith, for value and without notice of defect in title
Commercial Law
Stale Cheques (s3(5)) A cheque becomes stale after 15 months Banks have option to pay stale cheques Customer has right to tell banks not to pay stale
cheques
Commercial Law
Holder in Due Course (s3) (cont.) The holder took the cheque:
In good faith; For value; and Without notice of any:
dishonour of the cheque; or defect in, or lack of, title of the person
who transferred the cheque to the holder
Commercial Law
Holder in Due Course (s3) (cont.) The holder is deemed to have taken a cheque
with notice of defect in title if he had notice that the cheque was transferred to him
In breach of faith; or In fraudulent circumstances
Commercial Law
Holder In Due Course Person to whom a cheque has been negotiated Person has taken cheque
in good faith for value and without notice of defect
Cheque is regular on the face of it not stale Not crossed “not negotiable”
Commercial Law
Negotiation Normally, a person cannot get a better title to
goods than the title of the person who transferred it to him (the “Nemo Dat” Rule)
Negotiable instruments are an exception Person who holds a negotiable instrument
obtains good title to it even if they have unknowingly dealt with someone who is not the rightful owner
Commercial Law
Cheque Crossings (s 53) Required
2 parallel transverse lines; or 2 parallel transverse lines with the words not
negotiable between, or substantially between, the lines
Just putting the words not negotiable is NOT ENOUGH
Commercial Law
Effect Of Crossing A Cheque A direction by drawer to drawee not to pay the
cheque otherwise than to a financial institution (s54)
Where a cheque that bears a crossing and is transferred by negotiation to a person, the person does not receive a better title to the cheque than the title of the person from whom he took the cheque (s55).
Commercial Law
Effect of crossing a cheque Cheque cannot be cashed Acts as a safeguard against fraud Makes the cheque easier to trace A crossing may be added to a cheque by
drawer or any body else in possession of cheque
Commercial Law
Effect of crossing a cheque If bank pays out cash on a not negotiable
cheque then bank then bank has converted the cheque and must account to true owner of cheque for his loss
If person wrongfully obtains not negotiable cheque and then transfers it, then transferee has converted the cheque and must account to true owner of cheque for his loss
Cary v Rural Bank of NSW (Mann 844) Radford v Ferguson (1947) 50 WALR 14
Commercial Law
Radford v Ferguson (1947) 50 WALR 14 Plaintiff contracted with Johnson to build a
house Johnson not a registered builder Plaintiff drew cheque and crossed it “Not
Negotiable” Gave cheque to Johnson Johnson cashed cheque with third party Third party paid cheque paid to bank who
honoured it Plaintiff’s account debited
Commercial Law
Radford v Ferguson (1947) 50 WALR 14Decision Cheque obtained by false pretences Cheque voidable at option of plaintiff Johnson did have good title to cheque Third party did not get good title to cheque Third party had to pay plaintiff value of cheque
Commercial Law
Effect of crossing a cheque A collecting bank honouring a “not negotiable”
cheque gets no better title than the person presenting it to them
This means they could be liable in conversion to the true owner of the cheque
Commercial Law
Effect of crossing a cheque But Bank that honours cheque
in good faith without notice of defect Without negligence
Is protected (s 95) So bank that credits not negotiable cheque to
customer’s account cannot be sued
Commercial Law
Bank Cheques Do not comply with s. 10 definition. Is not drawn by one person on another Drawn by a financial institution on itself s. 5 clarifies and excludes operation of certain
sections with respect to bank cheques.
Commercial Law
Bank Cheques (cont.) Bank has no duty to warn public if cheques stolen No duty to prevent use by unauthorised persons. Not negotiable crossing means holder is not holder in
due course. This means holder can obtain no better title than person
from whom he took cheque Can be met with defence of total failure of consideration However may be misleading and deceptive conduct
Commercial Law
Bank Cheques (cont.) ABA Guidelines for dishonour of bank cheques
Forged or counterfeit instruments Bank cheques materially altered Bank cheques reported lost or stolen Failure of consideration for the issue of a bank
cheque Court order restraining payment
Still situations where they will be dishonoured.
Commercial Law
Raper V. Commonwealth Trading BankOf Australia (1975) 2 NSWLR 227 Jacobsen possessed a bank cheque drawn on
US Bank Wife used it to open account for them with CTB 12 days later obtained bank cheque in favour
Sidney Raper PL Used ank cheque to obtain goods from Raper US Bank Cheque dishonoured So, Commonwealth Bank dishonoured its bank
cheque
Commercial Law
RAPER V. COMMONWEALTH TRADING BANK
OF AUSTRALIA (1975) 2 NSWLR 227
Decision No value given by Raper to bank for cheque.
Total failure of consideration Credit in account conditional on clearance of
US Bank cheque Bank cheque not equivalent to cash
Commercial Law
Lyritzis and Lyritzis v. Westpac BankingCorporation No SG54 of 1992 FED No 812/94 Lyritzis opal miners and dealers in Coober Pedy Mr Lyritzis accepted 4 bank cheques drawn on ANZ from
interstate buyer unknown to him Before transaction Westpac Bank Manager told him that
a bank cheque was “as good as cash” and acceptable to any bank as a good and valid order for payment and failed to advise him that there were circumstances in which a bank cheque could be dishonoured
The bank cheques had been stolen Interstate buyer disappeared with the opals
Commercial Law
Lyritzis and Lyritzis v. Westpac BankingCorporation No SG54 of 1992 FED No 812/94Federal Court: Advice was misleading and deceptive due to
failure to warn of possibility of dishonour (s52 TPA)
A case where s. 52 TPA conduct may be constituted by silence
Negligence because duty to exercise reasonable care and skill when advising customer.
Commercial Law
Defects in Title Where a person obtains a cheque by
fraud duress other unlawful means
they do not get title to it (s3(3)) This does not limit the circumstances in which
they do not get title (s3(4))
Commercial Law
Defects in Title However, where a person lacks capacity or
power to incur a liability issues a cheque the cheque is still valid (s 30(3))
Commercial Law
COMMERCIAL BANK OF AUSTRALIA VYOUNIS (1979) 1NSWLR 444 Hallitt Bros owed Younis money Thought it was $3,000 and gave him a cheque Discovered more like $2,000 Cancelled the $3,000 and gave him a new
cheque for $2,000 Younis presented both and both paid by bank Bank could not collect from drawer
Commercial Law
COMMERCIAL BANK OF AUSTRALIA VYOUNIS (1979) 1NSWLR 444 Hallitt Bros owed Younis money Thought it was $3,000 and gave him a cheque Discovered more like $2,000 Cancelled the $3,000 and gave him a new
cheque for $2,000 Younis presented both and both paid by bank Bank could not collect from drawer
Commercial Law
COMMERCIAL BANK OF AUSTRALIA VYOUNIS (1979) 1NSWLR 444Decision Bank was entitled to recover money paid under
mistake of fact Unjust enrichment for Y to keep the money Note that it might have been different if Y had
changed his circumstances in reliance on money as this is a defence to a claim for return of money paid under a mistake of fact
Commercial Law
Drawing Bank’s Duty to Customer Pay any cheque presented for payment if there
are sufficient funds Will be liable for defamation if it doesn’t
Pay only in accordance with instructions given by drawer
Not to pay if cheque materially altered or signature forged Will be protected if pays in good faith and
without negligence
Commercial Law
Drawing Bank’s DutiesThe bank is not to honour a cheque if Countermanded (i.e. stop payment) (s90(1)(a)) It has notice of
Drawer’s mental incapacity (s90(1)(c)) Drawer’s death (s90(1)(c)) Drawer being an undischarged bankrupt (ss
125 and 126 of Bankruptcy Act )
Commercial Law
Drawing Bank’s LiabilityDrawing bank that honours cheque in good faith without notice of defect Without negligence
is protected (s 94)
Commercial Law
Customer’s Duty to Bank Inform bank if it becomes aware of forged
signature Write cheques carefully so as to reduce forgery Greenwood v Martins Bank (mann p 843) Commonwealth Trading Bank v Sydney Wide
Stores (Mann p 843)