CH6: CHEQUES (NEGIOTABLE INSTRUMENTS)
Minimize fraud by thoroughly the payment
DEFINITION OF CHEQUE
1- SECTION 73 of the BEA 1949
2- Bill exchange drawn on a banker payable
on demand.
CHARACTERISTICS OF CHEQUE
1- It must be an unconditional order in
writing
2- The cheque must be signed
3- It is drawn in a banker
4- It order to the banker to pay a sum of
money on demand
5- The cheque is drawn for a specified
person or in favour of a bearer
TYPES OF CHEQUES
1- UNDATED CHEQUE
Must fill the date within reasonable time
Cheque not date is a valid cheque s.3 (4)(a)
Holder of an undated cheque in the true date
of issue s.12 & s.20
2- OVERDUE / STALE CHEQUE
S.36(3) it has been circulation for reasonable
length of time after 6 month or more
Unreasonable depends on facts of case
When person try avoid liability on it
3- ANTE-DATED & POST-DATED CHEQUE
S.13(2)When dated is ante-dated, post-
dated or Sunday dated
ANTE-DATED CHEQUE Cheque bears
date before date issue
POST-DATED CHEQUE when cheque
bear dated in the future, strictly speaking
Not cheque, it is not payable on demand
s.13(2)
CROSSINGS OF CHEQUE S.76 BEA 1949
Purpose protection and security when
delivered by post
Not fall in the hands of unauthorized persons
such as thieves
Cannot cash across bank counter
The person who produced crossing cheque
must be have bank account for payment
That particular bank
must made only bank or otherwise
instruction for manner of payment
HOW CROSS A CHEQUE??
Drawing two line parallel line across the face of the
cheque. Sometimes there are words written between
the lines.
2 TYPES OF CROSSING
1- GENERAL CROSSINGS
a. Two parallel transverse lines only
b. Two parallel lines with the words not
negotiable
c. The words and company with the words
between two
d. The words & Co
e. The parallel transverse lines
f. The words and company with the words
not negotiable
g. The words and co with the words not
negotiable
The effect of GENERAL CROSSINGS
Paying banker can only is paying the amount
of the cheque to a collecting banker
Avoid unauthorized person to get payment
across the bank counter.
It can only be cashed using account.
Lost might has been discovered
Payment stopped
2- SPECIAL CROSSING
SECTION 76 (2) that crossing is special when
the name of the banker is written between the
parallel transverse lines or it is written across the
face of the cheque without lines.
The effect of SPECIAL CROSSING
Paying banker can only pay the amount of
the cheque to a collecting banker named in the
crossing.
Avoid unauthorized person to get payment
across the bank counter.
It can only be cashed using an account.
Lost might has been discovered
Payment stopped

3- Not negotiable CROSSINGs
When the cheque written the words between
the crossings on the face of the cheque, the
cheque loses the full character of
negotiability but remains transferable.
Person who hold the cheque a thief transfers
the cheque to A who accept the cheque
honestly and for value, A cannot obtain a
better than the thief the transferor of the
cheque section 81
CASE WILSON and Maeson v Pickering
W draw a cheque in blank crossed Not
Negotiable. His clerk, who was supposed to fill
in the amount and the name of the payee,
inserted a sum in excess of her authority and
delivered it to P in payment of her own debt. It
was held that since the clerk had no title to the
cheque, P had no better title and W was
therefore, not liable on it.
4- Account Payee Only CROSSINGs
The words account payee or a/c payee has
been used in the transaction.
CASE Yap Moi v Hong Leong Bank Bhd (2002)
The appellant maintained a share account with JB
Securities Sdn Bhd. In respect of some share trading
payments, JB Securities Sdn Bhd issued eight
cheques in favour of the appellant as the named
payee. However, the appellant's remisier, one Ng
Hong Chai ('Ng') came into possession of the said
cheques and subsequently banked it in his favour in
purported settlement of a debt due to him in his
dealings.
The respondent bank nevertheless converted the
cheques in favour of Ng. The appellant consequently
applied for summary judgment against the respondent
bank, claiming the sum of money had and received by
the respondent for the appellant's use or alternatively
for conversion. After her application was rejected by
the judicial commissioner, this appeal was made.
The Court of Appeal allowed the appeal by the
appellant saying that respondent Bank was negligent
in recklessly disregarding the a/c payee's crossing on
all the cheques that had the appellant's name on
them. Also, the protection under s.85 did not apply
here because the respondent did not act in a bona
fide manner.
PROTECTION OF THE PAYING BANKER
1. PAYING BANKER / DRAWER BANKER
-When customer draws a cheque on his
banker
2. DUTY - To pay right person according to the
person drawers mandate
3. IF PAY WRONG PERSON - Bank must bear
the lost
4. Must ensure not be liable for non
complier with the mandate and the
customer and conversion as regards true
owner of the cheque.
PROTECTION OF THE PAYING BANKER
(a) A banker is not liable if he pays a cheque in
due course - s.59
Payment in due course means payment made at
or after maturity of the bill to the holder in good
faith ana without notice that his title to the
cheque is defective.
For example, M draws a cheque on Bank ABC
Sdn Bhd. payable to G. On receiving the
cheque, G indorses the cheque in blank, thereby
making it payable to bearer. G misplaces the
cheque which is then found by R. R presents it
for payment at Bank ABC which pays the sum
stated in the cheque. Bank ABC will not be liable
even if G sues the bank for conversion because
it has made payment to the holder in good faith
and without notice of the defect in title. The Bank
has discharged the cheque by payment in due
course according to s.59. It can therefore debit
M's account.
(b) If the banker pays in good faith and in the
ordinary course of business, a cheque drawn on
him which bears a forged or unauthorized
indorsement, he is not prejudiced by the forgery
- s.60
For example, D draws a cheque on Bank Y in
favour of T, and it is stolen by L who forges T's
signature and negotiates it to M who in turn
negotiates it to N who obtains payment from the
Bank. If Bank Y has paid in good faith in the
ordinary course of business, the bank would not
be prejudiced by the forgery. The Bank can debit
D's account for the amount of cheque under
s.60; the Bank is not liable to D who is the true
owner.
(c) The paying banker is protected if he pays a
cheque which is not indorsed or is inrequiartv
indorsed in good faith and in the ordinary course
of business - s.82
(d) If the paying banker pays a crossed cheque
in good faith without negligence and in
accordance with the crossing, he is not liable -
s.80
(Note: s.79 sets out the duties of bankers with
regard to the payment of crossed cheques, i.e.
the payment must be in accordance with the
crossing.)
For example, Amy draws a cheque on Bank X in
favour of Betty in order to repay a friendly loan.
On receiving the cheque, Betty crosses it
generally. The cheque is stolen by Cathy who
goes into Bank Z and pretending to be Betty,
opens an account in Betty's name. Bank Z
presents the cheque to Bank X who pays in
good faith and without negligence. Bank X is not
liable by virtue of s.80.
The banker would lose protection of s.80 if he
pays the cheque otherwise than in accordance
with the customer's mandate, or if he has acted
negligently.
Slingsby v District Bank (1932)
The plaintiffs requested their solicitor,
Cumberbirch, a partner in M/S Cumberbirch &
Potts, to draw a cheque on their account on the
defendant's bank payable to M/S John Prust &
Co. The cheque was drawn with a gap between
the payee's name and the word "or order". After
it was signed by the plaintiffs, Cumberbirch
inserted the words "per Cumberbirch & Potts".
Cumberbirch indorsed the cheque and obtained
payment. It was held that the indorsed was not
in accordance with the customer's mandate (the
proper indorsement should have been "John
Prust & Co. per Cumberbirch & Potts") and the
bank could not therefore rely on the protection
given in the BEA.
PROTECTION OF THE COLLECTING BANKER
The banker to whom a holder of a cheque
presents the cheque for the credit of his account
is called the collecting banker.
The duty of such banker is to collect the amount
stated in the cheque from the drawer's bank (the
paying banker).
A collecting banker may become liable to his
customer for breach of contract; example when
he fails to collect when instructed to do so.
He may also be liable to the true owner for
wrongful interference or conversion where he
collects improperly on behalf of a customer who
is not entitled to the money.
However, the BEA does provide some protection
to the collecting banker
Under s.85, where a banker, in good faith and
without negligence, receives payment of a
cheque for a customer with no title or a defective
title, he is not liable to the true owner provided
some elements are proven:
a. That the banker acted for a customer.
Oriental Bank of Malaya v Rubber Industry
(Replanting) Board (1957)
b. That the banker acted in good faith
section 95 : "A thing is deemed to be done in
good faith, within the meaning of this Act, where
it is in fact done honestly whether it is done
negligently or not."
c. That the banker acted without
negligence.
 Thus, even if the banker had acted in good
faith, if he has been negligent, the banker would
not be protected under this section.
The Rubber Industry (Replanting Board) v
Hongkong and Shanghai Banking Corporation
(1957) MLJ 103
The National City Bank of New York v Ho Hong
Bank Ltd (1932) MLJ 54
DEFINITION AND NATURE OF HIRE-
PURCHASE AGREEMENT
Based on section 2(1) above there are two
definitions of HP agreement:
1. HP agreement is a letting of goods with an
option to purchase. This is similar to that in
common law.
2. The second definition is an agreement for the
purchase of goods installments. However, it
does not include agreements where ownership
passes at the time of the agreement or upon
delivery of goo in such an agreement, if the
ownership passes at the time of the contract it is
not called Hp agreement but a credit sale. The
definition also does include agreement where
the hirer is a dealer in the same goods.
In a contract of hire purchase, unlike the
contract of sale of goods, property goods or
ownership of the goods is not transferred to the
hirer at the time the HP agreement or upon
delivery of the goods. Throughout the period of
HP, the hirer only obtains possession and use of
the goods but not ownership. The property in
goods or the ownership remains with the owner
until the hirer has fully settled the price agreed
upon in the HP agreement.
FORMATION OF HIRE PURCHASE
The HP Act 1967 provides for the procedures
that must be complied with for a valid formation
of a hire-purchase agreement. Failure to comply
with the requirements of the Act would render
the agreement void or in some circumstances,
the commission of an offence. The followings
are the procedure:
1. Duty to give notice of the 2nd Schedule
before entering the HP agreement
Affin Credit (M) Sdn. Bhd. V Yap Yuen Fui
In this case it was held by the court that pre-
contractual disclosure is required even if the
offer to enter a hire-purchase agreement
emanated from the Hirer
Section 4(5) states that the owner and/or the
dealer who fail to serve a 2 nd schedule notice
before an agreement is signed shall also be
guilty of an offence under the Act. The penalty
for the said offence is as follow:
a. If such person is a body corporate, it is liable
to a fine not exceed RM 100,000, and for a
second or subsequent offence, to a fine
exceeding RM250, 000
b. If such person is not a body corporate, he is
liable to a fine not exceed RM25.000 or to
imprisonment for a term not exceeding RM25,
000 or to imprisonment for a term not exceeding
3 years or to both and for a second or a
subsequent offence, to a fine not exceeding,
RM50 000 or to imprisonment for a term not
exceeding 5 years or both as provided under the
new amended section 46.
2. The HP agreement must be in writing
3. The HP agreement must be signed
4. The HP agreement must contain certain
the details
5. Separate agreement for every item of
goods
6. No alterations or additions can be made to
the agreement
7. Motor Vehicles registration certificate
8. Altered or modified motor vehicles
 9. Declaration on second hand motor vehicle

10. Copies of the agreement must be served

on the hirer and guarantor

11. Booking Fee

12. Deposit to be paid by the hirer

INTRODUCTION OF REPOSSESION
STATUTORY RIGHTS OF HIRER
Main duty of a hirer under HP agreement to
make the payment of monthly installment
1. Right to a copy of statement relating to his without fail
When fail the owner can repossess the HP
financial position (section 9) goods
HP Act 1967 lay down the procedure
2. Right to appropriation of payment (section 10)

3. Right to apply for an order for goods to be

removed (section 11) PROCEDURES FOR REPOSSESION

4. Right to assign (section 12) 1. Default in payment

2. Service of 4th schedule notice

5. Right by operation of law (section 13)

3. Repossession
6. Right to early completion of agreement (section

14) 4. Service of 5th schedule notice and

procedures after repossession

7. Right to terminate agreement (section 15)

5. Selling off repossessed goods

8. Right after repossession (section 18, 19)