Presentation on theme: "Negotiable Instruments Mann “Essentials of Business Law”"— Presentation transcript:
1Negotiable Instruments Mann “Essentials of Business Law” pp 829 – 833 & pp
2Payment Of Cheque A cheque is either payable To order - requires drawee to pay to or to order of a person specified (s. 21) orTo bearercan be paid to whoever holds the chequethis is the default position if not payable to order (s. 22)Only 2 choices!
3Converting from Order to Bearer (s23) A cheque may be converted frompayable to bearer topayable to orderWherethe 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.
4Account Payee OnlyA direction to pay only to the bank account of the payee named on the chequeHas no legal status under Cheques ActOperates as a cheque payable to orderPuts collecting bank on notice to make further enquiries before paying someone other than named payee
5SignatureYou must have signed a cheque, either as drawer or indorsee, to be liable on it (s31)
6Unauthorised Signatures (s32) Where any signature is placed on a cheque without authority then it is inoperative unlessThe person against whom the signature is being asserted is estopped from denying its genuinenessIt has been ratified by the alleged signatoryBut 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
7Holder in Due Course (s3) A person is a holder in due course ifthe 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 itNot a stale cheque; andNot crossed “not negotiable”.And took the cheque in good faith, for value and without notice of defect in title
8Stale Cheques (s3(5)) A cheque becomes stale after 15 months Banks have option to pay stale chequesCustomer has right to tell banks not to pay stale cheques
9Holder in Due Course (s3) (cont.) The holder took the cheque:In good faith;For value; andWithout notice of any:dishonour of the cheque; ordefect in, or lack of, title of the person who transferred the cheque to the holder
10Holder 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 himIn breach of faith; orIn fraudulent circumstances
11Holder In Due Course Person to whom a cheque has been negotiated Person has taken chequein good faithfor value andwithout notice of defectCheque isregular on the face of itnot staleNot crossed “not negotiable”
12NegotiationNormally, 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 exceptionPerson who holds a negotiable instrument obtains good title to it even if they have unknowingly dealt with someone who is not the rightful owner
13Cheque Crossings (s 53) Required 2 parallel transverse lines; or 2 parallel transverse lines with the words not negotiable between, or substantially between, the linesJust putting the words not negotiable is NOT ENOUGH
14Effect 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).
15Effect of crossing a cheque Cheque cannot be cashedActs as a safeguard against fraudMakes the cheque easier to traceA crossing may be added to a cheque bydrawer orany body else in possession of cheque
16Effect 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 lossIf 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 lossCary v Rural Bank of NSW (Mann 844)Radford v Ferguson (1947) 50 WALR 14
17Radford v Ferguson (1947) 50 WALR 14 Plaintiff contracted with Johnson to build a houseJohnson not a registered builderPlaintiff drew cheque and crossed it “Not Negotiable”Gave cheque to JohnsonJohnson cashed cheque with third partyThird party paid cheque paid to bank who honoured itPlaintiff’s account debited
18Radford v Ferguson (1947) 50 WALR 14 DecisionCheque obtained by false pretencesCheque voidable at option of plaintiffJohnson did have good title to chequeThird party did not get good title to chequeThird party had to pay plaintiff value of cheque
19Effect of crossing a cheque A collecting bank honouring a “not negotiable” cheque gets no better title than the person presenting it to themThis means they could be liable in conversion to the true owner of the cheque
20Effect of crossing a cheque But Bank that honours chequein good faithwithout notice of defectWithout negligenceIs protected (s 95)So bank that credits not negotiable cheque to customer’s account cannot be sued
21Bank Cheques Do not comply with s. 10 definition. Is not drawn by one person on anotherDrawn by a financial institution on itselfs. 5 clarifies and excludes operation of certain sections with respect to bank cheques.
22Bank 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 chequeCan be met with defence of total failure of considerationHowever may be misleading and deceptive conduct
23Bank Cheques (cont.) ABA Guidelines for dishonour of bank cheques Forged or counterfeit instrumentsBank cheques materially alteredBank cheques reported lost or stolenFailure of consideration for the issue of a bank chequeCourt order restraining paymentStill situations where they will be dishonoured.
24Raper V. Commonwealth Trading Bank Of Australia (1975) 2 NSWLR 227Jacobsen possessed a bank cheque drawn on US BankWife used it to open account for them with CTB12 days later obtained bank cheque in favour Sidney Raper PLUsed ank cheque to obtain goods from RaperUS Bank Cheque dishonouredSo, Commonwealth Bank dishonoured its bank cheque
25RAPER V. COMMONWEALTH TRADING BANK OF AUSTRALIA (1975) 2 NSWLR 227DecisionNo value given by Raper to bank for cheque. Total failure of considerationCredit in account conditional on clearance of US Bank chequeBank cheque not equivalent to cash
26Lyritzis and Lyritzis v. Westpac Banking Corporation No SG54 of 1992 FED No 812/94Lyritzis opal miners and dealers in Coober PedyMr Lyritzis accepted 4 bank cheques drawn on ANZ from interstate buyer unknown to himBefore 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 dishonouredThe bank cheques had been stolenInterstate buyer disappeared with the opals
27Lyritzis and Lyritzis v. Westpac Banking Corporation 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 silenceNegligence because duty to exercise reasonable care and skill when advising customer.
28Defects in Title Where a person obtains a cheque by fraud duress other unlawful meansthey do not get title to it (s3(3))This does not limit the circumstances in which they do not get title (s3(4))
29Defects in TitleHowever, where a person lacks capacity or power to incur a liability issues a cheque the cheque is still valid (s 30(3))
30COMMERCIAL BANK OF AUSTRALIA V YOUNIS (1979) 1NSWLR 444Hallitt Bros owed Younis moneyThought it was $3,000 and gave him a chequeDiscovered more like $2,000Cancelled the $3,000 and gave him a new cheque for $2,000Younis presented both and both paid by bankBank could not collect from drawer
31COMMERCIAL BANK OF AUSTRALIA V YOUNIS (1979) 1NSWLR 444Hallitt Bros owed Younis moneyThought it was $3,000 and gave him a chequeDiscovered more like $2,000Cancelled the $3,000 and gave him a new cheque for $2,000Younis presented both and both paid by bankBank could not collect from drawer
32COMMERCIAL BANK OF AUSTRALIA V YOUNIS (1979) 1NSWLR 444DecisionBank was entitled to recover money paid under mistake of factUnjust enrichment for Y to keep the moneyNote 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
33Drawing Bank’s Duty to Customer Pay any cheque presented for payment if there are sufficient fundsWill be liable for defamation if it doesn’tPay only in accordance with instructions given by drawerNot to pay if cheque materially altered or signature forgedWill be protected if pays in good faith and without negligence
34Drawing Bank’s Duties The bank is not to honour a cheque if Countermanded (i.e. stop payment) (s90(1)(a))It has notice ofDrawer’s mental incapacity (s90(1)(c))Drawer’s death (s90(1)(c))Drawer being an undischarged bankrupt (ss 125 and 126 of Bankruptcy Act )
35Drawing Bank’s Liability Drawing bank that honours chequein good faithwithout notice of defectWithout negligenceis protected (s 94)
36Customer’s Duty to Bank Inform bank if it becomes aware of forged signatureWrite cheques carefully so as to reduce forgeryGreenwood v Martins Bank (mann p 843)Commonwealth Trading Bank v Sydney Wide Stores (Mann p 843)