Business Law

NAME: NIYI-OYEBANJI MOYIN JAMES

DEPARTMENT: Banking and Finance

COURSE: BUSINESS LAW/LAW OF

BANKING

CONTENT: Assignment solution to the following:

 Cheques as a negotiable instrument,
 Differences between a cheque and other Bills of
Exchange,
 Banker and customer relations,
 Duties of a customer to the bank,
 Duties of a banker to the customer,
 Crossing of cheques.
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Cheques as a Negotiable Instrument

For the purpose of clarity and the definition of ‘cheques as a negotiable instrument’ we must define
what a negotiable instrument is.
A Negotiable instrument is a financial instrument whose full legal title is transferable by mere
delivery or by endorsement and delivery, with the effect that its complete ownership and
legal interest are passed on to a transferee.
In a layman’s language an instrument is said to be negotiable if it is capable of transferring a
bonafide title in the instrument, better than that of the transferor’s title, provided the recipient
takes it in good faith and for a ‘value’. Examples of negotiable instruments are cheques, bills
of exchange, debentures, treasury bills, bank notes, bank drafts and others, with our major
focu s on CHEQUES.
Now the concept of a negotiable instrument has being established, the definition of cheques
as a negotiable instrument;
A cheque is a negotiable instrument instructing a financial institution to pay a specific
amount of a specific currency from a specified transactional account held in the drawer's
name with that institution (bank).
Personally, A Cheque is the most common and widely used negotiable instrument far above
other negotiable instruments in business transactions; As a negotiable instrument, it can also
be defined as an express directive from the customer requiring his banker to repay the money
he deposited to him as indicated in the cheque.
This might not directly relate cheques to a negotiable instrument, but it inversely relates cheques to a
Negotiable instrument, since a bill of exchange is also a negotiable instrument.
According to the BILL OF EXCHANGE ACT 1990: A cheque can be defined as bill of exchange
drawn on a banker payable on demand. In a broader sense, the bill of exchange is also a negotiable
instrument, therefore a cheque as negotiable instrument is an unconditional order in writing,
addressed by one person to a banker, signed by the person giving it, requiring the banker to pay on
demand, a certain sum of money to or to the other of a specified person or bearer.
It should also be noted that the receipt/collection of a cheque as a negotiable instruments for
collection, also imposes certain obligations on the collecting bank, and creates duty relationships or
relationships between the bank/banker and others, modified by statutory provisions/what the law
stipulates.
For the purpose of total cohesion, there are certain parties to a cheque, and they include the following:
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 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.

Differences between a Cheque and Other Bills of Exchange

There are various, salient, differences between a cheque and other bills of exchange, which makes the
cheque unique. In this view, the following sentences highlight the differences between a cheque and
other bills of exchange:
1. A cheque is only drawn on a banker, WHILE a bill may be drawn on a person, firm or company.

2. A cheque is normally `payable on demand` except it is post-dated, WHEREAS a bill of exchange

may be payable on demand or at a determinable future date, in meaningful terms, payment on demand
is not negotiable as regards a cheque, but slightly negotiable as regards bill of exchange.

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.

Banker and Customer Relations.

First of all, it will suffice to define the terms of this sub-topic (banker and customer
relations), which is the banker and the customer.
A bank(banker) even though it/he is referred to, as a person, must be a corporate body
established for the purpose of carrying on banking business, banking business including:
receiving deposits from customers, paying and collecting cheques drawn, or paid by
customers and other financial services.
A bank customer is the person either as natural person(s) or corporate bodies who receives
services from the bank.

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 DEBTOR-CREDITOR RELATIONSHIP BETWEEN BANKS AND CUSTMERS

The major judicial authority to fully explain this relationship is the case of
Folley Vs Hill (1848) 9ER 1002, that finally settled the argument by confirming that the
bank and customer relations relations/ banker-customer relationship is essentially that of
debtor and creditor relationship/ debtor creditor relationship. It was held that money, when
paid into a bank, ceases altogether to be the money of the principal(customer), it is then the
money of the banker who is to return an equivalent by paying a sum similar to that deposited
with him when he is asked for it.
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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.

Duties of a Customer to the Bank

The duties of a customer to the bank (banker) include the following:

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,

3. To pay reasonable commission and interest on borrowed funds as agreed,

4. To repay overdrafts on demand and repay loan and other facilities,
5. To draw a cheque with care and diligence, and in a manner that will not facilitate forgery,
fraud or unauthorized alteration.

Duties of a Banker to the Customer

The duties of a bank/banker to the customer (banker) include the following:
1. To give reasonable notice before closing the customer’s account,
2. To provide the customer with his/her statement of account regularly or on request,
3. To collect cash, cheques and other payable instruments deposited by its customers,
4. To draw customer’s attention to any suspicious adverse or other circumstances that may be
prudent to bring the customers attention so as to stop/forestall any unauthorized dealings by
third parties,
5. To abide by the customer’s written mandate provided the account is in fund or credit
arrangement has already being agreed.

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.

2. Cheque Crossed Specially

Where a cheque bears across its face an addition of the name of a banker, either with or
without the words 'not negotiable', that addition shall be deemed a crossing, and the cheque
shall be deemed to be crossed specially, and to be crossed to that banker. This is called
special-crossed cheque.

3. Account-Payee or Restrictive Crossing

This crossing can be made in both general and special crossing by adding the words account
payee. In this type of crossing, the collecting banker is supposed to credit the amount of the
cheque to the account of the payee only. The cheque remains transferable but the liability of
the collecting banker is enhanced in case he credits/gives the proceeds of the cheque so
crossed to any person other than the payee and the endorsement in favour of the last payee is
proved forged. Proper enquiries must be made, as to the title of the last endorsee from the
original payee named in the cheque before collecting an 'account payee' cheque in his
account. The same can be done by placing a slanted parallel line in the top most left corner of
the cheque and then writing over it "A/C payee only".

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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PURPOSE OF CROSSINGS (crossing of cheques)

The purpose or legal effects of crossings is to make it difficult and strenuous for fraudulent activities
to succeed, and to provide a safeguard or protection for the drawer and successive holders of the
cheque, reason being that such a crossed cheque cannot be cashed but collected for an account.

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

INTERNET RESOUCRES :http://www.lawteacher.net/

GOOGLE: http://en.wikipedia.org/wiki/ , And Investopedia, with assistance from Encarta

dictionaries

http://kalyan-city.blogspot.com/-(assisted for cheques as a negotiable instruments) with a mix of self

understanding

SOFT COPY MATERIALS AND HARD COPY MATERIALS

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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5. I.J. GOLD FACE-IROKALIBE, LAW OF BANKING IN NIGERIA,

6. O.A Longe, Essential Commerce, Tonad publishers
7. OMOLAJA A. ADENIJI,LAW RELATING TO BANKING, Collins Academic and
Professional texts.