Oliver Chibage

Assignment 3

LS340

[Vivien Zimba]

8 October 2024
A signed a cheque in blank and crossed “Not Negotiable’ Thereafter A handed
it over to his clerk to fill the amount and the name of the payee to pay the
monthly office rental. The clerk filled up the cheque and gave it to B in
settlement of a loan obtained by the clerk. When A comes to know of this, he
stopped payment of the cheque. Discuss the liability of A on the cheque.
Introduction
The Negotiable Instruments Act of 1881 define a cheque as a bill of exchange
in which one party orders the bank to transfer the money to the bank account of
another party. By its nature, a cheque is regarded as a negotiable instrument. A
cheque can either be open or crossed. A crossed cheque cannot be presented over
the counter but must be deposited directly into a bank account. The main reasons for
crossing a cheque are to safeguard against theft, to safeguard against fraud and to
safeguard against loss. This means crossing a cheque renders it more secure. The
Bill of Exchange Act 1882, in section 81 states that a cheque crossed “not
negotiable” give a better title to a person who takes than to him who makes the
cheque. Section 81A(1)(b) of the same Act further directs that any document
(including a cheque), issued by a customer of a banker which, though not a bill of
exchange, is intended to enable a person to obtain payment from that banker of the
sum mentioned in the document. However, such documents have specific features
and characteristics which makes them valid, otherwise they would not be acceptable.
One of the key characteristics of a crossed cheque is that a banker is only liable to
the drawer of the cheque and the holder or bearer has no remedy against the
banker. This assignment will then seek to establish whether A is liable this case.
Analysis of the Case Study
In the case study under discussion, A did sign a blank cheque but crossed it
“not negotiable.” He proceeded to pass on the cheque to B without filling in the
amount of money and the drawee. B then filled in the cheque to pay his on debts and
not the for the purpose directed by A, the legal drawer.
Duties of Drawer
A customer or a drawer has legally binding responsibilities or duties which,
they must abide with when issuing cheques. The duties of the drawer are:
i) duty to exercise reasonable care in drawing cheques on the banker
(London JSB v Macmillan and Arthur (1918) AC 7777) and
ii) ii) Duty to disclose forgeries (Greenwood v Martins Bank Ltd (1932) 1
KB 371).
The duty to exercise reasonable care in drawing cheques requires that, where
the drawer has no express agreement to the contrary, he should not draft a cheque
in a manner that facilitates fraud or forgery. There is need to be extremely careful
when drawing out the cheque so that nothing is left to chance that can result in fraud
(Grindlays Bank International (Z) Limited v Nahar Investments Limited. In the case of
London Stock Bank Ltd v Macmillan, the court advanced two determining issues,
namely, i) whether customer was guilty of negligence in signing the cheque as he
did, and ii) whether the negligence was a breach of duty between the customer and
the bank. Where customer’s negligence directly results in the loss of money, the
customer must bear the loss.
 This means that A, in this case, had a duty to exercise reasonable care and to
take precautions against any acts of fraud and forgery. However, by signing a blank
cheque and giving it to a third party to fill the amount and drawee without his close
supervision, A defaulted on his duties and therefore is liable.
Duties of a Banker
The law ascribes duties and responsibilities to bankers in relation to crossed
cheques. Section 82 (1) of the Negotiable Instruments Act of the Indian Laws of
1881 states that where a cheque is crossed, the banker on whom it is drawn shall
pay it otherwise than to a banker. Section 4 of the same Act lays liability on the
banker where the banker on whom a crossed cheque is drawn, by someone else
other than the banker to whom it is crossed or his agent. However, section 84 limits
the entitlements of a person who attains possession of a cheque crossed and
endorsed “not negotiable” by stating that such a person shall not have better title to
the cheque than the drawer. Section 85 gives the true owner of a crossed cheque
who suffered loss of value through theft or any such criminal mishap, the right to
recover from any such person who was the possessor thereafter after the theft or
loss of the whole amount so lost.
The Cheques Act, Chapter 424 of the Laws of Zambia, in section 5(1) offers
protection to bankers who are victims of fraudulent activities through use of cheques.
It states that, where a banker in good faith and without negligence (a) receives
payment for a customer of an instrument to which this section applies, or (b) having
credited a customer’s account with the amount of such an instrument, receives
payment thereof for himself; and the customer has no good title, of a defective title to
the instrument, the banker does not bear liability to the true owner by mere reason of
receiving payment thereof.
Whereas A had crossed the cheque “not negotiable,” that action on its own is
regarded as a mere precaution to restrict negotiability of the cheque but does not
necessarily protect the cheque from fraud and forgery, particularly where the cheque
is left blank. The action evoked by A to stop payment would be of little value because
it was made after the crime had already been committed. Thus, A is liable for the
loss suffered in this case.
Conclusion
The facts given in this case reveal serious acts of negligence on the part of A.
He negligently exposed himself and the bank to fraud by signing a blank cheque and
giving it to somebody to fill in the amount and drawee resulting in the forgery. A is
liable for the loss suffered in this case. Crossing the cheque “not negotiable” only
serve to determine the negotiability of the cheque but cannot stop fraud or forgery
where the drawer acts negligently and carelessly as what happened with A in this
case.

Reference.
The Bill of Exchange Act 1882
The Cheques Act, Chapter 424 of the Laws of Zambia
Negotiable Instruments Act of 1881 of the Indian Laws

Cited Cases
Grindlays Bank International (Z) Limited v Nahar Investments Limited 1990-1992
Greenwood v Martins Bank Ltd (1932) 1 KB 371
London JSB v Macmillan and Arthur (1918) AC 7777