4.1 Commercial Paper & Negotiable Instruments

Introduction: Commercial Paper

The concept of commercial paper seeks to express the close nexus

between possession of the instrument and the exercise of the rights

embodied in it. By identifying the right with the paper, the transfer and

exercise of the right is simplified, and the right in a certain sense

subjected to the principles of the law of property governing the

instrument, that is a negotiable instrument is a movable, whose ownership

transfer upon either simple delivery if it payable to bearer, or

endorsement and delivery if it is payable to order.

It also presents an exception to the general rule that legal rights are

transferred either through cession or assignment by fusing the rights

embodied in the negotiable instrument and the document itself, i.e. fusing

the right to receive payment, with a document, which is a movable

Commercial paper embodies personal rights and mobilizes rights of action

and simplifies their enforcement and transfer

Negotiable Instruments

The law of negotiable instruments is governed by the Bills of Exchange Act

[Cap 14:02], which has adopted the English Bills of Exchange Act of 1882

with minor variations

Simply put, in its physical form a negotiable instrument is an

expression of an obligation by someone to give payment under

the instrument

Such an instrument is referred to as negotiable because the holder of such

an instrument can impart the right held therein to another person (the

right to receive payment)

In outline, this concept is very simple provided that a written instrument

complies with the prescribed formalities, the legal rights which are written

on the instrument may be transferred to another person either by mere

delivery or by the transferor signing his name on the back of the

instrument (endorsement), followed by delivery

Negotiable instruments embody personal rights in such a way that the

rights, in principle, can be enforced only through possession of the

instrument.

It is important to grasp and distinguish the concepts of negotiability and

transferability at the very outset:

(i) Transferability:- is the passing of rights with or without equities (i.e.

free form any defences which have been available against previous

holders) this transfers only rights the owner had, the transferee

cannot receive a better title than the transferor

(ii) Negotiability:- an instrument is said to be negotiable where a

person who takes transfer of the instrument in good faith (i.e.

regular on the face of it, without notice of previous dishonours) and

for value receives title to these rights free from any defences that

might have been available against previous owners i.e. free form

equities

See the case of Peacock v Rhodes 99 ER 402 were it was stated that the

holder of a bill or note could not be treated as a cessionary. A cessionary

takes subject to equities of prior parties: were this rule applied to bills and

notes “ it would stop their currency”

One would notice that transferability is a component of negotiability but it

does not necessarily follow that an instrument is negotiable because it is

transferable

A good example of this is a bill of lading. Like a bill of exchange a bill of

lading arose from mercantile usage and it is utilized in the functions of

international trade. Both a bill of exchange and a bill of lading are freely

transferable on delivery.

A distinction, however, is that a bill of exchange has the added dimension

of negotiability, a bill of lading does not possess this quality even though it

is freely transferable and assignable-it deals with entitlement to

proprietary rights expressed in their physical nature.

Thus custom has not endowed a bill of lading with the aspect of

negotiability. A bill of lading is not a negotiable instrument but does

constitute commercial paper because the rights evidenced by it generally

presuppose its possession. -See the case of Standard Bank of SA v

Efroinken & Newman 1924 AD 117

Put simply to negotiate is to transfer in a certain way (see Impala Plastics

v Coetzer 1984 2 SA 392 (W)). Negotiable instruments are instruments

that are transferable in a certain manner.

The traditional test for negotiability is whether the instrument, by law,

trade usage or custom of trade is transferable like cash by delivery, and

capable of being sued upon by the person holding it pro tempore. Another

usual requirement is that the instrument should embody an undertaking to

pay money or to deliver securities representing money.

Attributes of Negotiable Instruments

Negotiable instruments are simply a species of commercial paper.

Negotiable instruments have three important characteristics.

(i) A purchaser in good faith of the instrument acquires ownership in it

even where his transferor had no title or defective title to it. The

purchaser does not derive title from the transferor but his title is

intrinsic in the purchase. The demands of commerce necessitates this

exception to the principles of the law of property regarding transfer of

ownership (Impala Plastics v Coetzer 1984 2 SA 392 (W).

(ii) A purchaser in good faith takes the instrument in good faith takes the

instrument free from defences available to prior parties among

themselves. Thus he obtain the rights embodied in the instrument as

they appear on the face of it

(iii) Payment in good faith to the holder discharges the instrument and

parties to it

In deciding the nature of an instrument look at the following: -

The instrument must be transferable freely by mere delivery- a bearer

instrument is the only one which is so-thus if you are dealing with any

other instrument it should be endorsed and transferred

The transferee should be able to acquire a better title – a potential of

perfect title on the instrument – to be so one must receive the instrument

in good faith, without any notice of previous dishonours, regular on the

face of thereof- then one becomes a holder in due course. If a person

cannot qualify to be a holder in due course –still the person can transfer

the instrument which remains negotiable

Dealing with an instrument which negates transferability –there is no way

you can make it negotiable i.e. if it is crossed and marked “not negotiable”

– no person who takes the instrument can acquire nor give an unassailable

title which is perfect in the instrument

Some instruments are recognized as negotiable by trade usage but are

not governed by the Bills of Exchange Act – in dealing with such

instruments always refer to the Act- there is no conflict between the Act

and the common law, rather the Act is a codification of common law

principles. Examples of such instruments

Are the ordinary treasury bills on the money market (see the case of

Secfin Ltd v Mercantile Bank Ltd 1993 2 SA 34 (W)) and so are certain

debenture and bonds. These bills are freely transferable and negotiable,

the same also applies of banker’s drafts, i.e. a bank cheque written by the

bank against itself and consequently doesn’t have the traditional drawer -

drawee relationship and the same also applies for Negotiable Certificates

of Deposit (NCDs)

Functions of negotiable instruments

Bills, cheques, notes are commercial paper and play an important and, in

some respects, essential role in commercial transactions. They are

instruments of payment, credit and investment.

From a common sense perspective the instrument is freely transferable

and therefore can simultaneously exchange values: enter into transactions

freely and conveniently systems of financing trade should be flexible

Whenever one transacts it is better knowing that transactions will not

depend on factors that one has no control over, hence the aspect of

deriving rights from a negotiable instruments eliminates this danger that

can be posed by factors unknown to the transacting parties so parties to a

contract can conveniently transact without placing reliance on a contract

between A & B. so if a negotiable instrument is negotiated to you get

perfect rights.

With a negotiable instrument like NCDS one is looking at complete rights

embodied in the NCD, where the money come from is irrelevant. It gives

perfect title to the value reflected thereon.

In the case of cheques, cheques are used to effect payment. Paying is not

always practical and it is more convenient to draw cheques in favour of a

creditor and deliver it to him.

However, in present day times the same result can be achieved by other

methods such as the use of credit cards or by bank transfer

Types of negotiable instruments

Promissory Notes

In the world of commerce, promissory notes are the most common.

However, for present purposes i.e. the study of banking law, cheques are

of far greater importance and consequently will be the primary focus of

our studies.

However for purposes of illustration and the facilitation of better

understanding of negotiable instruments we will briefly look at promissory

notes because they are the least complicated of negotiable instruments

Promissory notes are covered under part III of the Act. S89 defines a

promissory note as:

An unconditional writing made by one person to another signed by the

maker engaging to pay on demand or at a fixed or determinable future a

sum certain in money to, or to the order of a, specified person or to

bearer.

Essential Characteristics

It’s unconditionally payable on demand should not have an existing

impediment to the immediate liquidation of the instrument.

Obligation to be discharged should be in money not an alternative of

service

The instrument should not be drafted in such a manner that evidence

should be led to ascertain the amount.

In drawing a promissory note, words used should be clear on the face of it.

Conditions of Promissory Notes

Promise must be unconditional. There must be a bold promise to pay not

just an acknowledgement of an indebtnesss to pay.

That unconditional promise must be in writing. A verbal promise does not

constitute a promissory note.

The promise must be reduced to writing.

Must establish a nexus between the two, one being the intended

beneficiary and the other being the one to shoulder the obligation

concerned. The promise to be made by the latter to the former.

It therefore follows that because it amounts to a commitment that person

must sign the note as evidence of assuming an obligation. Signature can

be of the maker or his duly authorized representative.

If signature is forged then the obligation would not be tied to the

purported maker with only an exception that it could if can be stopped.

Promissory note must be payable on demand or at fixed determinable

date. If vague it ceases to be a promissory note.

Bills of Exchange

Bill of Exchange in general is covered by Part I of the Act. S3 (i) defines a

bill of exchange as:

“An unconditional order in writing addressed by one person to another, signed by

the person giving it requiring the person to whom it is addressed to pay on

demand or at a fixed or determinable future time, a sum certain in money to or

to the order of a specified person or bearer.”

The main difference between a promissory note and a bill of exchange is

that the latter is not a promise, it is an order being issued by the person

who is drawing that bill (the drawer of the bill) to the person who has

money (drawee-recipient of instruction) to pay the person who benefit who

is called payee. Another difference is that a bill of exchange is an

imperative order (requirement) with a promissory note what exist is a

request not a mandatory order.

Bills of exchange because they are negotiable instruments, have a number

of advantages over other methods of providing trade credit.

First, the claim on the bill is generally dissociated from any claim in

relation to the underlying transaction. By contrast a supplier of goods on

open account may be faced with disputes about the quality of goods and

services: if it draws a bill on buyer , the latter will have to raise those

matters separately after paying the bill

A person buying a bill e.g. a bank generally obtains a good title to it, even

when the transferor has a defective or no title at all. This feature is

facilitative of market transactions in bills

The claim embodied in a bill is transferred by delivery or indorsement and

delivery, and a holder can sue in his own name

A bill of exchange (as differentiated from a cheque) is of great importance

to international trade. The use of a bill in commercial transactions enables

a seller, manufacturer or exporter to obtain payment before the dispatch

or shipment of the goods and also allows the purchaser or importer to

postpone payment until is received.

Short-term finance can also be made available to trade and commerce by

means of bills. An example of this is that a manufacturer of goods must

finance the cost of raw materials until he is paid for the finished product.

Bridging finance can be obtained in the following way.

A merchant bank opens an acceptance credit for the manufacturer,

undertaking to accept the manufacturer’s bills drawn for certain agreed

amounts payable on specified dates.

Drawing and discounting bills that fall due on that date on which the

selling price of the finished goods will be received, enable the

manufacturer to pay for the raw materials. The manufacturer reimburses

the bank after payment of the bills by the bank and on receipt of the

proceeds of the sale of the products.

[Discounting of a bill is a transaction “by means of which the merchant

receives his money a great while before it is money indeed”. Succinctly, it

amounts to the purchase of a bill before maturity at a discount. Three

factors determine the amount of the discount, viz the ruling rate of

interest in the money market, the acceptance commission and stamp duty

if any]

Parties to a bill of exchange:

Using the bill of exchange as an illustration there are three parties, namely

The drawer: - who is the person who draws a bill ordering another person to

(the drawee) to pay the named beneficiary appearing on the bill or bearer

The drawee; - is the person against who an order in the form of a bill is made

The payee: - is the person in whose favour the bill is made if it made to order or

in the case of a bill made to bearer, the payee is simply the person in possession

of a bill

The foregoing are the three basic a parties to a bill on its issue (that is its

first delivery) but the following parties are worthy of notice:

(a) “Bearer” means the person in possession of a bill or note which is

payable to bearer;

(b) “Holder” means the payee or endorsee of a bill or note, who is in

possession of it, or the bearer thereof;

(c) A holder in due course is a holder, who has taken a bill, complete and

regular on the face of it and in good faith and acquires a good and complete title

to the bill free from defects,

Bills of exchange in international trade tend on the whole to favour buyers,

by contrast letters of credit, where the seller can claim payment as soon

as it ships the goods are more favourable to sellers

The Holder in due Course

The holder in due course occupies a central place in the law of negotiable

instruments: he acquires ownership in the instrument even where he

acquires it from a non dominus and takes it free from defects of title and

mere personal defences available to prior parties among themselves

It follows that a holder in due course must be a holder and a holder is

defined in the act as the payee or endorsee of a bill or note, who is in

possession of it, or the bearer thereof

Section 28 of the Act provides that for a holder to qualify as a holder in

due course, the holder must have been ignorant of certain facts at the

time the bill was negotiated to him. See section 28 of the Act and Diesel-

Electric (Natal) (Pty) Ltd v Ramsukh 1994 1 SA 382 (D)

A payee of a bill or note payable to order cannot be a holder in due

course. The reason being that section 28 of the Act stipulates that the

holder must have no notice of certain facts when the bill was negotiated to

him. The words have been construed to mean a holder in due course must

have obtained the instrument by negotiation as defined in section 30 of

the Act

In the case of Jones Ltd v Warring & Gillow Ltd 1926 AC 670 it was

unequivocally stated that:

“ A holder in due course is a person to whom the bill has been negotiated by

being transferred from one person to another and (if payable to order) by

indorsement and delivery. In view of these definitions it is difficult to see how the

original payee of a cheque can be a holder in due course” within the meaning of

the Act.” See section 30 of the Act

However, in the case of a bearer instrument, it is negotiated by mere

delivery. See section 30 of the Act

According to section 30 of the Act a bill payable to bearer is negotiated by

delivery and according to the same section a bill made payable to order is

negotiated by indorsement of the holder coupled with delivery

With reference to section 30 the first delivery of a bill payable to order

cannot be a negotiation since the bill is not indorsed by the holder

The first delivery of a bill, complete in form, to a person who takes as

holder is its issue, and not a negotiation

The first delivery of a bill payable to bearer is conversely both a

negotiation and an issue of the instrument- Diesel Electric (Natal) (Pty) Ltd

v Ramusukh (supra)

Good Faith

Section 28 of the Act sets out a uniform standard of good faith, which

applies both to the discharge, and acquisition of a bill. This section

provides that a thing is deemed to be done in good faith if it is in fact done

honestly, irrespective of whether or not it was done negligently

The requirement that a holder in due course must have been in good faith

at the time the bill was negotiated to him involves several aspects. In

particular it means that he must have taken without knowledge of a

previous dishonor and without knowledge of a defect in the title of the

person who negotiated the bill to him

The requirement is that the bill must be complete and regular on the face

of it. A holder may meet the foregoing requirements but may have

knowledge of other facts and circumstances or his acquisition may itself

be of such a nature that neither he nor his acquisition could have been in

good faith

In general the Act insists on the holder’s honesty. See Kahn v Volschenk

1986 3 SA 84 (A), Secfin Bank Ltd v Mercantile Bank Ltd 1993 2 SA 34

(W)

The measure of a holder’s good faith is therefore whether he had a certain

subjective state of mind when he acquired the instrument

The question is not whether he should have knowledge of certain facts but

whether he did in fact have such knowledge

The doctrine of constructive knowledge, which attributes knowledge of

certain facts to a holder in circumstances where the reasonable would

have made inquiries, does not apply to negotiable instruments. This

measure of good faith, it is said, would impair the rapid negotiation of bills

and would be detrimental to commerce- see Manchester Trust v Furness

(1895) 2 QB 539 @ 545; John Bell & Co Ltd v Esselen 1954 1 SA 147

(A);

Consequently it is accepted that a holder who has acquired a bill through

carelessness, negligence or ignorance cannot by reason of his state of

mind be disqualified as a holder in due course- see Baker v Barclays Bank

Ltd 1955 2 ALL ER 571

Unavailability of Defences against a Holder in due Course

A holder in due course acquires a real right to the instrument in his

possession and takes it free from claims that prior parties may have had

on the instrument

Section 28 (3) provides that were title to an instrument is defective the

holder in due course obtains a good and complete title to it

Section 28 does not enumerate all the defences against which a holder in

dues course is protected from nor does it name those to which he is

subject

Section 28 only frees the holder in due course from defects in title of prior

parties, and from mere personal defences available among themselves to

prior parties. It does not literally free him from defects in title of his own-

see Foster v Mackinnon (1869) LR 4 CP 704

Some Defences can be raised against the holder in due course, e.g.

absolute defences

Absolute Defences

By raising an absolute defence, the defendant avers that the appearance

of having bound himself on the bill is not attributable to him

Absolute defences include: non est. factum, the non-delivery of an

incomplete document, vis absoluta, lack of capacity, forged or

unauthorized signature and material alteration

Non-est factum

A person who signs a bill not knowing that it is a bill may raise the defence

of non est factum unless when signing the instrument he was negligent or

careless, so creating the impression that he intended to bind himself.

Non-delivery of an incomplete instrument

A person who signs either an incomplete instrument or a blank piece

subsequently converted into a bill, is in principle not liable on it

He has an absolute defence against every holder, including a holder in due

course. He can however be liable in circumstances outlined in section 19

of the Act

Vis absoluta

By raising the defence of vis absoluta the defendant avers that his

signature does not constitute a legal act because he was forced to sign.

Vis absoluta can the therefore be raised against a holder in dues course. It

does not constitute a defect in title

Lack of capacity

Capacity to incur liability on a bill is co-extensive with capacity to contract-

see section 21(1) of the Act

It follows that the lack of capacity which exists both at the time of

signature and delivery is a defence available against the holder in due

course

A person without legal capacity is not liable in contract

Forged or unauthorized signature

Section 23 of the Act provides that where a signature on a bill is forged or

placed without authority of the person whose signature it purports to be,

forged or unauthorized signature is wholly inoperative and no right to

retain the bill or to give a discharge therefore, or to enforce payment

thereof against any party thereto, can be acquired through or under that

signature

A forged signature cannot be ratified because the forger does not profess

to act on behalf of the person whose signature he has forged

The person whose signature is forged or not authorized may, however,

incur liability by adopting the signature, thereby creating the impression

that he has made it, and consequently is estopped from denying its

validity- see Leach v Buchanan (1802) 4 Esp 226 (170 ER 700); Brown v

Westminster Bank Ltd 1964 2 Lloyd’s Rep 187

Material Alteration

A person who signs an altered bill is not liable according to the tenor of

the bill as altered if the alteration was made without his consent –see

section 63 of the Act

However, no objection can be made to his liability on a bill as it existed at

the time of his signature

A material alteration is not defined in the Act, but appears to be an

alteration which would alter the liability of any of the parties to the bill

It includes but is not limited to alterations of the date, the amount

payable, and the time and place of payment

Unauthorized Representation

No one is liable as drawer, acceptor or indoser of an instrument if he has

not singed in that capacity

A party to a bill need not sing it with his own hand and it is sufficient that

his signature be written or printed on it by or under his authority see

section 24 of the Act

Cheques

Cheques are covered under Part II of the Act. The Act defines a cheque in

S72 as: “a bill of exchange drawn on a banker payable on demand.”

A comprehensive definition of a cheque is covered in the case of Barclays

Bank and Ors v Bank of England 1985 (1) Aller 385 it was said, “ A

cheque is a bill of exchange in the sense that it is drawn on a bank only.”

In the case of Orlando Fine Foods Pvt v Sun International (Bophutswana)

Ltd 1994(2) SA 249, it was held that a bank draft (i.e. a cheque drawn by

a bank on itself) is not a cheque as per the act.

Since the bank is both the drawer and the drawee. The document is not an

unconditional order addressed by one person to another as required by

section 72 as read with the definition of a bill of exchange in S3 (i) of the

Act.

The law of cheques makes use of all the concepts and principles of the law

of obligations and its sources are found in legislation, custom and the

general rules of private and public law

The most important legislative provisions applying to the cheques are

found in the Bills of Exchange Act

A cheque is neither money nor legal tender and a creditor is not obliged to

accept it in payment of a debt. A cheque is rather an instrument by which

a person can easily dispose of amounts to his credit with a bank.

Thus a cheque must comply with the formal requirements of a bill, and in

a addition, be drawn on a bank and payable on demand. The question

whether certain documents such as traveller’s cheques are cheques must

be determined with reference to the definition of a bill and cheque as

provided by the Bills of Exchange Act

The existence of a cheque represents the existence of an underlying

relationship of indebtnesss between the two parties, the banker and his

customer. The customer opens a current account with the banker,

deposits some money in that account and is provided with a chequebook

for the purposes of effecting withdrawals. The money deposited belongs to

the bankers. See: Foley v Hill (1894) 2HL CAS28; S v Kearney 1964 (2)

SA 495; Commissioner of Customs & Excise v Bank of Lisbon International

Ltd and Another 1994 (1) SA 205.

The banker is under an obligation to discharge his indebtnesss by paying

cheques drawn on his customer.

NEGOTIABLILITY OF CHEQUES

For the cheque to be negotiated it should have the following features:

On the face of the cheque should be capable of being transferred from one

person to another by delivery alone, if it is a bearer cheque or by

endorsement and delivery, if it is a cheque drawn in favour of the order.

Once the cheque has been negotiated to a person, the person who

assumes the rights to sue on it in his own name.

If a person takes a current and regularly drawn cheque in good faith and

for value he takes that cheque free of equities.

If a cheque is drawn in favour of a bearer the cheque would be a bearer

instrument. According to S30 (2) of the Act: “a bill payable to bearer is

negotiated by delivery”

Section 2 defines a delivery as the: “transfer of possession, actual or

constructive from one person to other” Thus the holder of the cheque

would be capable of transferring his rights on the instrument to another

holder by delivery alone.

If however, the cheque is as presented in the cheque above then it is an

order instrument. According to S30 (3): “a bill payable to order is

negotiated by the endorsement of the holder completed by delivery”

S33 (2), defines a special endorsement as:” an endorsement that specifies

the person to whom or to whose order the bill is to be payable”

If a person just signs at the back of the cheque without the additional

words then the endorsement is referred to as a blank endorsement.

S33 (1) defines this “as an endorsement which specifies no endorsement

and a bill so endorsed becomes payable to the bearer.”

S34 (1), a restrictive endorsement is defined as:” an endorsement which

prohibits the further negotiation of the bill or which expresses that it is a

mere authority to deal with the bill as thereby directed.” e.g. If an

instrument is endorsed “pay Tanaka only” then it is restrictively endorsed.

According to S2 “endorsement means an endorsement completed by

delivery.” Therefore for the rights to be transferred, the endorsement

should be followed by delivery.

CROSSINGS

In modern times the incidence of cheque frauds has increased

tremendously. Therefore drawers of cheques are called upon to draw their

cheques in a manner, which is not likely to ensure that the proceeds of the

cheque do not fall into wrong hands.

In order to maximize the protection afforded to the drawer (or to

subsequent holders of the cheque) a cheque can be crossed and certain

words added which would have the cumulative effect of restricting the

negotiability or transferability of the cheque.

The drawee bank is not likely to know the genuine signature of the payee

who has been appointed because the endorsement might not be the

banker’s customer.

GENERAL CROSSINGS

A general crossing is defined by S79 in the following manner: “where a

cheque bears across its face and addition of:

The words ‘and company’ or any abbreviation thereof between two

parallel transverse lines with or without the words ‘not negotiable’ or

Two parallel transverse lines simply, either with or without the words ‘not

negotiable’ that addition constitutes a crossing and the cheque is crossed

generally.”

Once you have a cheque crossed generally the effect is that the banker on

whom the cheque is drawn (drawee) must not be cashed to any person

other than the bank. A cheque crossed that way cannot be cashed over

the counter. Instead that cheque has to be paid in a bank account.

If “and company” is added between the two parallel transverse lines the

effect is that the cheque cannot be paid over the counter. Instead it has to

be paid into a bank account bearing that particular company designation.

Once you have a cheque crossed generally the effect is that the banker on

whom the cheque is drawn (drawee) must not be cashed to any person

other than the bank. A cheque crossed that way cannot be cashed over

the counter. Instead that cheque has to be paid in a bank account. If “and

company” is added between the two parallel transverse lines the effect is

that the cheque cannot be paid over the counter. Instead it has to be paid

into a bank account bearing that particular company designation.

If “not negotiable” is added between the two parallel lines, the cheque is

actually negotiable. The effect of the words is not to negate negotiability

or transferability. The effect of the words would mean that rights are

transferred subject to equities (defects).

Hence the words “not negotiable” give measure of protection to the

drawer should that cheque be lost or stolen. Any person who becomes a

holder of a cheque crossed “not negotiable” holds it subject to equities so

that if person who transferred cheque to her had a defective title the

person who receives the cheque faces the same defenses against a claim

for payment from the drawer.

Further, a general crossing can have the form of two parallel lines with the

words “a/c payee” between the two parallel lines. These words do not

affect the negotiability or transferability of the cheque. The words have

the effect of giving a direction to the collecting banker, that the specified

payee only should receive the money. If the specified payee transfers the

cheque by the special endorsement as happened in the case of Standard

Bank of SA Ltd v Sham Magazine Center 1977 (1) SA 484 the words

would cease to have any effect.

In Rhostar v Netherlands Bank 1972 (2), SA 703, R at 705. The judge

Golden J held that the effect of these words was to make the cheque non

transferable, i.e. only the named payee could receive payment. In Philsam

v Beverly Building Society 1972 (2) SA 546 R, Newman J decided the

opposite. He held that the effect of the words was not to render the

cheque non-transferable to another payee and even subsequent payees

It would appear that the weight of authority favors the view that “a/c

payee” has no effect on the transferability of a cheque.

If the words “not transferable” are written either within or without the two

parallel lines, then the cheque is rendered totally not transferable and only

the named payee’s bank account can be credited once the proceed of the

cheque are cleared.

SPECIAL CROSSING

According to S72 (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.”

With a special crossing it is important to note that there are the two

parallel lines. Such a crossing can be added to a pre-existing crossing

although it is quite proper for it to exist on its own. As noted above, a

general crossing is merely an instruction to the paying banker to pay to

another banker. A special crossing however, specifies the banker to be

paid. The paying banker should only effect payment to the named banker.