DEFINITION

The Paying Bank is the Bank on whom the Cheque is drawn.

 

Duties to Pay Customer’s Cheques

 

The following conditions are to be satisfied……..

 

–There should be sufficient funds in the account or an arrangement to overdraw the account.

 

–Cheque should be properly drawn.

 

–There should be no  legal bar  to make payment

 

           

 

What is a Legal Bar

 

It is a condition where the payment of a cheque is precluded from being paid.

 

–Countermand (Stop Payment)

–Death of a customer

–Mental incapacity

–Bankruptcy

–Prohibitory Notice

–Court Order / Injunction

–Notice of Breach of Trust

–Forged Drawer’s Signature

– 

Wrongful Dishonor

 

The Bank would be Liable…..

 

–Breach of contract

 

–Liable ( The damage caused to the customer due to misrepresentation of facts)

 

Wrongful Dishonor

 

If the cheque has been wrongfully dishonored……. The Bank should…

 

–Correct  the account entries.

 

–Apologize to the Customer.

–Contact the Payee and advice them, if the cheque is represented, it would be paid.

 

 

 

 

Alteration of a Cheque

 

If a material part of a cheque is altered… All parties cease to be liable other than the following…

 

–The Party who altered it.

–The Party who authorized the alteration.

–The Party who becomes a endorsee subsequent to the alteration.

 

 

STOP PAYMENT

 

Customer should give clear & precise instructions. (Cheque No , Amount )

Telephone Instructions should be confirmed in writing.

Any authorized signatory can stop the payment of a cheque. ( According to the Mandate )

A customer has the right to stop the cheque until the moment the bank pays it.

When canceling a stop payment all parties necessary to comply the request. (Even if one party has the right to operate the account)

 

PAYMENT OF A STOPED CHEQUE

If the Bank has paid a cheque in error , it has to be reimbursed to the customer.

 

If other cheques have been returned on account of this payment, the Bank would be liable for Breach of contract & Libale.

 

Stopped cheque is ineffective against a Holder in Due Course ( Can enforce the cheque against the Drawer )

REMARKS-(FOR STOP PAYMENTS)

 

“Payment stopped by Drawer”

            When written instructions are received by the Bank for the stop payment.

 

“Payment Postponed pending drawers confirmation”

            When we receive telephone instructions to stop payment a cheque pending receipt of written instructions. 

 

WHEN A PAYEE REQUEST FOR A STOP PAYMENT

 

The Bank will note and ask the payee to immediately inform the drawer and for him to give stop payment instructions to the bank.

 

(The bank does not have any legal relationship with the payee)

FORGED DRAWER’S SIGNATURE

(Section 24 of BOE Ord)

 

Forged signature is wholly inoperative and paying a cheque on a forged signature is contrary to the mandate.

 

PROTECTION TO THE PAYING BANKER

(Under Section 60 of BOE Ord.)

Gives protection to the paying bank when paying order cheques whether crossed or not.

 

–In Good faith. (Done honestly , whether it is done negligently or not)

 

–In the ordinary course of business.

 

 

PROTECTION TO THE PAYING BANKER

(Under section 80 of BOE Ord.)

Gives protection to the paying bank when paying  crossed cheques.

 

–In good faith.

 

–Without negligence.

 

           

 

By

Sanjeeva Pieris