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PAYMENT AND COLLECTION OF CHEQUES

By tiitucker on Sunday 25th of October

301 3


BY ADEFOLAJUWON AYOBIOLOJA
LL.B(HONS), B.L, LL.M.


WHAT IS A CHEQUE?
Section 2 of the Bill of Exchange Act Cap. B8 LFN 2004 defines a cheque as a prescribed instrument.
"A check is an unconditional order in writing, addressed to a bank or banker, signed by the person giving it, requiring the bank or banker to pay on demand a sum certain in money to a designated person, or to order, or to bearer." See Black's Law Dictionary (Tenth Edition), pages 287 & 289.
The Supreme Court in H.M.S. LTD. v. FIRST BANK [1991] 1 NWLR (Pt. 167) 290; [1991] LPELR-1364 (SC), per Obaseki, JSC at page 28, para C held: "A cheque in strict sense, is an order or request for payment until the cheque is honoured or cleared and the amount stated on it paid, it is not money."
"A cheque is a bill of exchange drawn on a banker payable on demand; and except as otherwise provid ed in this Part, the provisions of this Act applicable to a bill of exchange payable on demand apply to a cheque." See Section 73 of the Bills of Exchange Act, 2004.

RULES OF ALTERATION IN A CHEQUE
Where alterations are necessary in any of the books of a bank like a cheque, they should be made carefully, the wrong entry being neatly ruled through, and the correct one written above or below it.
Where a mistake has been made in drawing a cheque, it is considered desirable to have a fresh one written.
All material alterations in a cheque must be initialled or signed and all alterations in a cheque must be confirmed by each drawer. It is not sufficient in the case of a limited company's cheque, if a material alteration is initialled only by the secretary, unless, of course, the banker has authority to accept the signature of the secretary alone.
With regard to alterations in a cheque like other bill of exchange, Section 64 of the Bills of Exchange Act 2004 states that;
(1) Where a bill or acceptance is materially altered without the assent of all parties liable on the bill, the bill is avoided except as against a party who has himself, made, authorised, or assented to the alteration, and subsequent indorsers. Provided that, Where a bill has been materially altered, but the alteration is not apparent, and the bill is in the hands of a holder in clue course, such holder may avail himself of the bill as if it had not been altered, and may enforce payment of it according to its original tenor.
(2) In particular the following alterations are material, namely, any alteration of the date, the sum payable, the time of payment, the place of payment, and, where a bill has been accepted generally, the addition of a place of payment without the acceptor's assent.
The alterations authorised by the Bill of Exchange Act, 2004 under Section 34(4) are; Any holder may convert a blank indorsement into a special indorsement, under Section 79; Where a cheque is uncrossed, the holder may cross it generally or specially, Where crossed generally, the holder may cross it specially, Where crossed generally or specially, the holder may add the words " not negotiable." Where crossed specially, a banker to whom it is crossed may cross it specially to another banker for collection, Where an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he may cross it specially to himself.

VERIFICATION OF SIGNATURE
Whenever a customer opens an account in Bank, a signature card is usually issued for customer’s signature prototype which is fed into the bank’s system. When the customer issues a cheque, bank teller will compare customer’s signature on the cheque against the signature prototype manually. If the signature on cheque does not match with the system’s prototype signature, the teller will not allow the cheque to go through clearing process and it will be returned back. If signature is legitimate, then cheque will be sent for clearing process. Section 24 of the Bill of Exchange Act 2004 is to the effect that, where a signature on a bill is forged or placed there on without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly inoperative, and no right to retain the bill or to give a discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority.

CROSSING ON A CHEQUE
Crossing on a cheque is simply instructing the banker to pay the specified sum through the banker only, i.e. the amount on the cheque has to be deposited directly to the bank account of the payee. Hence, it is not instantly encashed by the holder presenting the cheque at the bank counter. The crossing of a cheque is done by making two transverse parallel lines at the top left corner across the face of the cheque.
Section 24(1) of the Bill of Exchange Act 2004 is to the effect that where a cheque bears across its face an addition of;
(a) the words "and company " or any abbreviation thereof between two 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.
(2)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 constitutes a crossing, and the cheque is crossed specially, and to that banker.

RULES GOVERNING PAYMENT OF CHEQUE
Section 72 of the Bills of Exchange Act, 2004 provides that;
(a) where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or the person on whose account it is drawn had the right at the time of such presentment as between him and the banker to have the cheque paid, and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of such banker to a larger amount than he would have been had such cheque been paid;
(b) in determining what is a reasonable time regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case;
(c) the holder of such cheque as to which such drawer or person is discharged shall be a creditor, in lieu of such drawer or person, of such banker to the extent of such discharge, and entitled to recover the amount from him.
Section 45 (1) of the Bills of Exchange Act, 2004 provides that; a bill must be duly presented for payment; and if it be not so presented the drawer and endorsers shall be discharged. (Please See Section 45 (1) of the Bills of Exchange Act for the list of rules governing payment of cheque)

MEANING OF CHEQUE CLEARING
Cheque clearing is the process of moving cash (or its equivalent) from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system.

DUTY OF THE COLLECTING BANKER
The duty of a collecting banker stated by Per AYOOLA, J.S.C. in the case of BANK OF THE NORTH LTD v. YAU (2001) LPELR-746(SC) (P. 46, Paras. B-F) as follows;
"The Bank in regard to the five cheques is a collecting bank. The collecting bank is an agent of the customer for the purpose of receiving payment of the cheques from the banker on whom they are drawn. The law is clearly and succinctly put in Halsbury's Laws of England, 4th Edition, Vol. 3(1), para 212 thus: "In collecting cheques and other instruments for a customer a banker acts as a mere agent or conduit pipe to receive payment of the cheques from the banker on whom they are drawn and to hold the proceeds at the disposal of his customers." But then, the learned authors went on to say: "The character in which a banker receives a cheque is a matter of fact in each case: he may be a mere collecting agent, or he may take as a holder for value or in due course." The banker can be both an agent for collecting and a holder for value at the same time (See Halsbury's (op cit) para. 212 at page 179)."
The Supreme Court stated the duty of a collecting bank as follows: "...The collecting bank has a duty to present a cheque within a reasonable time after it reaches him. He is liable to his customer for loss arising from delay. When a cheque is dishonoured the collecting bank's duty is, in my opinion, prescribed by Section 49 (m) of the Act as follows: "where a bill when dishonoured is in the hands of an agent, he may either himself give notice to the parties liable on the bill, or he may give notice to his principal; and if he gives notice to his principal he must do so within the same time as if he were the holder, and the principal upon receipt of such notice has himself the same time for giving notice as if the agent had been an independent holder." The notice may be given as soon as the bill is dishonoured and must be given within a reasonable time thereafter.'' It is clear from the above pronouncement of the Supreme Court that a collecting bank is an agent of its customer in respect of a cheque issued and lodged into a customer's account. Where the cheque is dishonoured by the drawer's bank, the collecting bank has a statutory duty to inform its customer as its principal of the dishonouring of the cheque within a reasonable time. See UBA PLC v. GOSTAR INVESTMENT CO. LTD (2018) LPELR-44886(CA) (Pp. 45-55, Paras. E-B) Per BOLAJI-YUSUFF, J.C.A.

DUTY TO PRESENT CHEQUE
"The law is that, where the creditor accepts a negotiable instrument upon which the debtor is not primarily liable, the creditor must present the instrument within a reasonable time..." . BANK OF THE NORTH LTD v. YAU
(2001) LPELR-746(SC) (P. 31, paras. C-F) Per KARIBI WHYTE, J.S.C
A holder of a cheque must either present it for acceptance or negotiate it within a reasonable time. See Section 40 of the Bills of Exchange Act, 2004.

DUTY TO GIVE NOTICE OF DISHONOUR
When a bill has been dishonoured by non-acceptance or by non-payment, notice of dishonour must be given to the drawer and each endorser, and any drawer or endorser to whom such notice is not given is discharged: Provided that;
(a) where a bill is dishonoured by non-acceptance, and notice of dishonour is not given, the rights of a holder in due course subsequent to the omission shall not be prejudiced by the omission;
(b) where a bill is dishonoured by non-acceptance, and due notice of dishonour is given, it shall not be necessary to give notice of a subsequent dishonour by nonpayment unless the bill shall in the meantime have been accepted. See Section 48 of the Bills of Exchange Act, 2004.
Where a collecting bank has failed in its duty to give due notice of dishonour of a cheque delivered to it merely for collection to its customer within a reasonable time and the customer has suffered prejudice, the customer's action lies in damages for negligence. See Bank of the North Ltd. v. Yau (2001) FWLR (pt.54) 280.Section 50 (2) of the Bill of Exchange Act provides that notice of dishonour of a bill is dispensed with by express or implied waiver Notice of dishonour may be waived before the time of giving notice had arrived, or after the omission to give due notice. Bank of the North Ltd. v. Yau (2001) FWLR (pt.54) 280 at 297. It is not a matter of assumption at all whether or not a bank is a holder for value. The fact must be averred and proved. As a rule of pleadings where a bank claims on a bill, a statement of claim must allege the right in which the bank claims on the bill, that is, whether as payee, holder or endorsee and whether as holder in course or holder for value. Bank of the North Ltd. v. Yau (2001) FWLR (pt.54) 280 at 312. In Bank of the North Ltd. v. Yau (2001) FWLR (pt.54) it was held as follows:- 1. By Section 47 of the Bills of Exchange Act, a bill is dishonoured by non-payment of the value of money stipulated thereon. P.296. 2. Section 48 of the Bills of Exchange Act stated that notice of dishonour must be given to the drawer and each endorser of the bill. Failure to do so, the right of a holder is due course subsequent to the omission shall not be prejudiced by the omission. 3. Section 49(1) of the Bills of Exchange Actstipulates that notice of dishonour of the bill must be given within a reasonable time thereafter. Time is of the utmost importance in relation to giving notice of dishonour what constitutes reasonable time is a question of fact dependent upon the circumstances of the case. 4. By Section 49 of the Bills of Exchange Act. where a bill when dishonoured is in the hands of an agent (or a banker) he may either give notice to his principal, and if he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal upon receipt of such notice has himself the same time for giving notice as if the agent had been an independent holder. The notice may be given as soon as the bill is dishonoured and must be given within a reasonable time thereafter. See AFRIBANK NIG PLC v. HOMELUX CONSTRUCTION COMPANY LTD & ANOR (2008) LPELR-9020(CA) (Pp.29-30, Paras.A-F) Per PETER-ODILI, J.C.A.

RULES GOVERNING THE VALIDITY AND EFFECTIVENESS OF NOTICE OF DISHONOUR
Section 49 of the Bills of Exchange Act, 2004 is to the effect that;
Notice of dishonour, in order to be valid and effectual, must be given in accordance with the following rules, that is;
(a) the notice must be given by or on behalf of the holder, or by or on behalf of an endorser, who, at the time of giving it, is himself liable on the bill;
(b) notice of dishonour may be given by an agent either in his own name or in the name of any party entitled to give notice whether that party be his principal or not;
(c) where the notice is given by or on behalf of the holder, it ensures for the benefit of all prior endorsers who have a right of recourse against the party to whom it is given;
(d) where notice is given by or on behalf of an endorser, entitled to give notice as hereinbefore provided, it ensures for the benefit of the holder and all endorsers subsequent to the party to whom notice is given;
(e) the notice may be given in writing or by personal communication and may be given in any terms which sufficiently identify the bill, and intimate that the bill has been dishonoured by non-acceptance or non-payment;
(f) the return of a dishonoured bill to the drawer or an endorser is, in point of form, deemed a sufficient notice of dishonour;
(g) a written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal communication ; and a misdescription of the bill shall not vitiate the notice unless the party to whom the notice is given is in fact misled thereby;
(h) where notice of dishonour is required to be given to any person, it may be given either to the party hi mself, or to his agent in that behalf;
(i) where the drawer or endorser is dead, and the party giving notice knows it, the notice must be given to a personal representative, if such there be, and with the exercise of reasonable diligence he ca n be found;
(j) where the drawer or endorser is bankrupt or insolvent, notice may be given either to the party himself or to the trustee or official assignee;
(k) where there are two or more drawers or endorsers who are not partne rs, notice must be given to each of them, unless one of them has authority to receive such notice for the others;
(l) the notice may be given as soon as the bill is dishonoured and must be given within a reasonable time thereafter; and in the absence of special circumstances, notice shall not deemed to have been given within a reasonable time unless;
(i) where the person giving and the person to receive notice reside in the same place, the notice is given or sent off in time to re ach the latter on the day after the dishonour of the bill,
(ii) where the person giving and the person to receive notice reside in different places, the notice is sent off on the day after the dishonour of the bill, if there be a post at a con venient hour on that day, and if there be no such post on that day then by the next post thereafter;
(m) where a bill when dishonoured is in the hands of an agent, he may either himself give notice to the parties liable on the bill, or he may give notice to his principal; and if he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal upon receipt of such notice has
himself the same time for giving notice as if the agent had been an independent holder;
(n) where a party to a bill receives due notice of dishonour, he has, after the receipt of such notice, the same period of time for giving notice to antecedent parties that the holder has after the dishonour;
(o) where a notice of dishonour is duly addressed and posted, the sender is deemed to have given due notice of dishonour, notwithstanding any miscarriage by the post office.



INSTANCES WHERE NOTICE OF A DISHONOURED CHEQUE CAN BE DISPENSED WITH
Section 50 Of The Bills Of Exchange Act 2004 is to the effect that;
(1) Delay in giving notice of dishonour is excused where the delay is caused by circumstances beyond the control of the party giving notice, and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate the notice must be given with reasonable diligence.
(2) Notice of dishonour is dispensed with;
(a) when, after the exercise of reasonable diligence, notice as required by this Act cannot be given to or does not reach the drawer or endorser sought to be charged;
(b) by waiver express or implied; and notice of dishonour may be waived before the time of giving notice has arrived, or after the omission to give due notice;
(c) as regards the drawer in the following cases;
(i) where drawer and drawee are the same person,
(ii) where the drawee is a fictitious person or a person not having capacity to contract,
(iii) where the drawer is the person to whom the bill is presented for payment,
(iv) where the drawee or acceptor is, as between himself and the drawer, under no obligation to accept or pay the bill,
(v) where the drawer has countermanded payment;
(d) as regards the endorser in the following cases;
(i) where the drawee is a fictitious person or a person not having capacity to contract and the endorser was aware of the fact at the time he endorsed the bill,
(ii) where the endorser is the person to whom the bill is presented for payment,
(iii) where the bill was accepted or made for his accommodation.




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Comments (1)
tiitucker (2020-10-26 12:14)
Nice piece counsel

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