Law of Banking As It Relates To Negotiab
Law of Banking As It Relates To Negotiab
Drawer: the person that draws and signs the cheque, the bank customer orders the bank to pay the
face value of the cheque out of the money he has with the bank
Drawee: this is the bank to which the order to pay is directed. It is the paying banker, that is the bank
that holds the customer’s money.
Payee: This is the beneficiary of the proceeds of the cheque, the payee is the person is the person
who receives the face value of the cheque i.e. the amount on the cheque.
3. The Bills of Exchange Act provides for cheques to be crossed, there is no such provisions for other
Bills of Exchange.
4. A cheque does not need to be accepted prior to payment, as it is payable on demand, BUT, other bills
of exchange needs to be accepted prior to payment, even if payable at sight.
5. Immediately a cheque is drawn and signed , the drawer becomes primarily liable on it, WHILE for
other bills of exchange, the acceptor of a bill becomes fully liable on the bill after he might have
signed the bill or written ‘accepted’ on the bill thereby indicating its acceptance.
6. Section 77(2) of the Bill of Exchange Act 1990, subject to certain conditions, protects the collecting
banker when collecting cheques for customer, AS REGARDS, other bills of exchange, there is no
such protection for a bank which collects the proceeds of bills of exchange.
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7. Cheques are commonly used in domestic trade, WHILE other bills of exchange are commonly used
in international trade, observably.
With these sentences or points, the distinction between a cheque and other bills of exchange have
being established; Summarily, we can say the cheque is one of the most respected negotiable
instrument that is widely used, with more concepts and precautions when compared to other bills of
exchange; as cheques, can be easily related to financial transactions and legal situations, quick
payments and others, when compared to other bills of exchange.
REFRENCE AT THE END OF THIS PAPER/ASSIGNMENT.
The banker and customer relationship has a long evolutionary history. At a time, the
other courts gave legal considerations to the banker-customer relationship and held that a
bank is a BAILEE OR A DEBTOR.
The relationship and nature of the contract between the banker and customer appears to be
complex, and it varies according to the nature of the banking transaction which is under
consideration. The relationship is governed by:
The general rules of contract;
The rules of agency, in circumstances where the banker/ban acts as agent for his
customer in collecting cheques or paying cheques on his behalf;
The rules of bailee and bailor, where the banker retains his customers deeds and
documents for safekeeping; and
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Various rules of banking practice, evolved over several years which have been
recognized and enforced by the courts.
Where a bank collects a cheque for its customer, it has a dual role.
In the act of collection, it acts as an agent to the customer presenting the cheque and receiving
payment on his behalf, but the debtor-creditor relationship also applies, because having
received payment, it is not obliged, (without express instruction) to hand the money over to
the customer, for it is an implied term of the contract that the proceeds of the cheque shall
immediately, upon receipt be borrowed by the bank from the customer, the sum being
borrowed being credited to the customer.
In Hall Vs Fuller (1826) ER 279, the bank was described as a depository of customer’s
money. In Devaynes Vs Noble (1816)1, Mer572, it was held that money deposited with the
bank is debt/liabilities to the bank (judicial authorities: strictly from the materials consulted,
no modifications, but with subsequent personal ideas on the subject)
With this introduction, the banker-customer relation/relationship is essentially a
contractual one, it is essentially, generally and traditionally expressed as a debtor-creditor
relationship: the bank accepts deposits from its customers and automatically becomes their
debtor, equally, the bank lend to customers, then becomes their creditor.
However, the debtor-creditor relationship is not the only relationship that exists between
banks and customers; there are other relationships that are contractual in nature.
They include Agency, Bailment and Trusteeship, and other relationships.
Let’s shed more light on the debtor-creditor relationship, which is an important and popular
relationship between banks and customers.
The trade of the banker/banks business is to receive money and use it as if it were his own, he
being the debtor to the person who deposited it with him to use it as his own. This, in simpler
terms means that the debtor-creditor relationship/position is usually alternated between the
banker and the customers, the banker trades with the money or lends the money with interest,
the funds deposited with him, making him a debtor, liable to the deposits of the customers.
Inference: He (the banker) trades with the customer’s (depositors) money by lending it to
some other customers with an interest, which is the banker’s profit, making the banker a
creditor this time around, and the other customers/customers (lending customers), debtors.
These other judicial authorities also justify the debtor-creditor relationship between banker
and customers:
Osawaye Vs National Bank of Nigeria Limited (1973) NCLR 474
Trade Bank Nigeria Plc V. Barilux Nigeria Ltd (2000).
And all other related cases.
Other kinds of Banker and Customer relations include the following with short notes on
them:
Principal-Agent Relationship: Agency is created between a bank and the customer when
the bank performs its function of collecting cheques for and on behalf of its customers.
Bailment: A contract of bailment is created when a customer delivers to the bank and the
bank accepts an item or items for safe-custody
Trusteeship and Executorship relations: Bankers do not act as executors of will and if the
exercise is prolonged, the bank becomes a trustee. In some instances, a bank may be asked to
administer trust properties.
1. To give written instruction to the bank if he seeks to withdraw his money. Such instructions
are usually backed by cheques, standing orders, direct debit instructions and others ,
2. To inform the bank without delay, any suspicious dealings on his account as soon as it comes
to his knowledge e.g. misplacement of cheques/cheque books. Forgery of his signatures, or
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other things which are not forgery, may require that the banks records are amended e.g.
Change of signature, delegation of authority to sign and other sensitive conditions,
Crossing of cheques.
The concept of a crossed cheque or crossing of cheques is a very important concept as regards the
dealing of cheques and the channels it passes through; as it majors on the security of the collector,
the cheque and mode of cashing i.e. cashing the cheque or collecting the proceeds of the cheque.
Where a cheque bears across its face an addition:
A). the words ‘and company’ or any abbreviations of them, between parallel transverse lines, either
with or without the words ‘not negotiable’; or
b). two parallel transverse lines simply, either with or without the words ‘not negotiable’,
That addition constitutes a crossing and the cheque is crossed generally
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in some simple words: crossing of cheques occurs in a situation where the cheque bears across its
face an addition of the name of a banker, either with or without the words not negotiable that addition
constitutes a crossing, and the cheque is crossed specially, and to that banker.
CROSSING OF CHEQUES can summarily be explained as a cheque that has been marked
to specify an instruction about the way it is to be redeemed, as it is a cheque that is payable
only through a collecting banker and not directly at the counter of the bank, even as it ensures
the security to the holder of the cheque, as only the collecting banker credits the proceeds to
the account of the payee of the cheque.
In this light a cheque may be crossed specially of generally by the drawer. Where a cheque is
uncrossed, the holder may cross it generally or specially; where a cheque is crossed generally,
the holder is also permitted to cross it specially; also, where a cheque is crossed generally or
specially, the holder may add the word ‘not negotiable’.
As a matter of fact, where a cheque is crossed specially, the banker to whom it is crossed may
again cross it specially to another bank for collection, likewise, if an uncrossed cheque, or a
cheque crossed generally, is sent to a banker on collection he may cross it specially to himself
It should be properly kept in mind that crossing of cheques, either general or special, is an
important, material part of the cheque; therefore it will be unlawful for any person to
obliterate or, except as authorised under the BILLS OF EXCHANGE ACT, to add or alter the
CROSSING. For the purpose of clarity, the key points on the types of crossing will be
examined as we continue.
Types of Crossing
1. Cheque Crossed Generally
Where a cheque bears across its face an addition of the words 'and company' or any
abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines
simply, either with or without the words 'not negotiable', that addition shall be deemed a
crossing, and the cheque shall be deemed to be crossed generally and can be credited to any
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account without endorsement but through a (account) banking channel so that the beneficiary
may be traced.
4. Not-Negotiable Crossing
The words 'not negotiable' can be added to general-crossing as well as special-crossing and a
crossing with these words is known as not negotiable crossing. The effect of such a crossing
is that it removes the most important characteristic of a negotiable instrument: the transferee
of such a crossed cheque cannot get a better title than that of the transferor (cannot become a
holder in due course) and cannot convey a better title to his own transferee, but the
instrument remains transferable.
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Crossing ‘not negotiable’ makes it necessary for the cheque for the cheque to be paid into an account,
and for the proceeds to be collected from the Drawee bank.
It also deprives the cheque of the negotiability not its transferability (ability of the
cheques title to be transferred). A person taking such cheque shall not therefore be
capable of giving a better title to the cheque, than that which the transferor had.
‘Account payee’ crossing is also recognised by the courts, that the crossing is directed to the
collecting banker who may be deemed negligent if he collects such cheque for a party other than the
named and identified payee.
The crossing- ‘ACCOUNT PAYEE’ does not affect the negotiability of the cheque and does not
concern the paying bank/the paying banker.
R EFENCES
1. Personal Past handouts/ Lecture Materials(unknown sources) from Different Lecturers from
the Previous levels/years( 100 and 200level)
2. Presentation-Essential Law and Practice
3. National Open University-School of Law, LAW OF BANKING AND INSURANCE,
DR. SAMUEL APENGA, FACULTY OF LAW AHAMADU BELLO UNIVERSITY
4. LAYI AFOLABI. LAW AND PRACTICE OF BANKING, Heinemann Publishers.
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