1. Negotiable Instruments Mann “Essentials of Business Law”
pp 829 – 833 & pp

2. Payment Of Cheque A 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!

3. Converting from Order to Bearer (s23)
A cheque may be converted from
payable to bearer to
payable to order
Where
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.

4. 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

5. Signature
You must have signed a cheque, either as drawer or indorsee, to be liable on it (s31)

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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”

12. 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

13. 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

14. 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).

15. 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

16. 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

17. 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

18. Radford v Ferguson (1947) 50 WALR 14
Decision
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

19. 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

20. 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

21. 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.

22. 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

23. 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.

24. Raper V. Commonwealth Trading Bank
Of 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

25. 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

26. Lyritzis and Lyritzis v. Westpac Banking
Corporation 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

27. Lyritzis and Lyritzis v. Westpac Banking
Corporation No SG54 of 1992 FED No 812/94
Federal 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.

28. 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))

29. 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))

30. COMMERCIAL BANK OF AUSTRALIA V
YOUNIS (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

31. COMMERCIAL BANK OF AUSTRALIA V
YOUNIS (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

32. COMMERCIAL BANK OF AUSTRALIA V
YOUNIS (1979) 1NSWLR 444
Decision
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

33. 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

34. Drawing Bank’s Duties The 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 )

35. Drawing Bank’s Liability
Drawing bank that honours cheque
in good faith
without notice of defect
Without negligence
is protected (s 94)

36. 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)