Chapter 7 :Payment Instrument

Cheque:

 According to negotiable  instrument act 1881 section 6 “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.

 Basic Feature of Cheque:

1.   Instrument in writing

2.   An unconditional order

3.   On a specified Banker

4.   Payee to be certain

5.   A certain sum of money

6.   Payable on demand

7.   To be signed by the drawer

Material Parts of a cheque :

1.    A date

2.    Amount

3.    Payee

4.    Place

5.    Crossing/open cheque

Sample of cheque

Types of Cheque:

1.Open cheque

    a.Bearer Cheque

    b. Order Cheque

2. Crossed cheque

    1.Special Cross

    2.General Cross

Sample of cross cheque.

Characteristics of a bearer cheque:

The terms bearers cheque refers to a cheque refers to a cheque that is payable to who ever presents the cheque rather than to a designated payee.Such cheque is known as bearer draft

This is risky chque of found by any one he can collect the credit.

                   Characteristics of crossed cheque

Crossing of cheque means drawing two parallel lines on the face of the cheque with or without words like &CO,Account payee or NOT NEGOTIABLE.

It cant be credited to payee account but cant be encashed  in the cash counter.

                           Characteristics of Order Cheque

When instead of bearer ,,the word or order is written on the face of the cheque the cheque is called an order cheque.

Such cheque is payable to person specified by the payee or anyone to whom it has been transferred or endorsed .

Importance of crossed Cheque

1.If payment is made by means of a crossed cheque receipt need not be obtained

2.Account Payee crossed cheque make sure only the particular person (To whom it is drawn) can receive payment.

3.The finder of lost crossed cheque cant encash it without the help of the banker

4.Payment of cheque particularly crossed cheque enabled automatic record of the amount in the pass book.

Various types of payment instrument used by the bank:

Debit Card: A payment card which is used for withdrawing cash and buying goods and services.The amount is debited directly from the cash holders bank account .

                                                                

Credit card :A payment card that can be used for buying goods and services and possibly for cash withdrawals on the basis of an approved credit line .For payment by credit card the money is not withdrawn from the card holders account until some time after the payment ,typically once in a  month.

Direct Debit:Direct debit is a way for consumer to pay recurring bills once the consumer has registerd a bill for payment via direct debit ,the creditor always initiates the future payments of the same bill.

Bank draft:A type of cheque where the payment is guaranteed to be available by issuing bank.

In payment from:The joint in payment form can be used to pay bills at the post office ,at the bank or via online banking .The impayment form makes it possible to transfer payment directly to the creditors bank account.

Difference between cheque and bank draft:

Cheque:

1.Issued by individual.

2.Drawn by account holder.

3.The drawer and drawer are both different.

4.A cheque can be dishonor for not having suffiecent fund on the account.

Bank Darft:

1.Issue by bank.

2.Drawn by bank to another.

3.The drawer and Drawee are both bank.

4.A bank draft cant be dishonored cause the payment is certain.

Causes of Dishonor of a cheque:

1.Not having  sufficient funds in the payee account

2.If the amount written on cheque and figure is diffrent.

3.If the owner of cheque reports that the cheque and figure is different.

4.If the owner of cheque reports that the cheque is lost/stolen then bank stops payment.

5.If the person become unsound mind ,prior to notice the bank stops payment.
6.If court ordered the bank stops payment of any account.
6.If the person declared insolvent by the court.
7.If the cheque is torn,the bank refused to pay.
8.If drawer not mention the date then bank refuse its payment.
9.Notice of the death of customer if received then bank refused to pay.
10.If the cheque is mentioned before the date mention on it.
11.If the cheque is outdated the bank refused to pay.
12.If the signature of the drawer is not matched with specimen bank refuse to pay.


Pay order:
pay order is a type of negotiable instrument like draft which instruct a payer bank to pay a certain sum to a third party also called pay to order.

Material alternation of cheque :

According to cheque act 1986 section 3 (8)
"An alternation of a cheque is a material alternation if it alters in any respect a right ,duty or liability of the drawer or endorser or the drawee institution ."


Material alternation refers to 

I.Alternation of date of the instrument.
II.Change of payable sum
III.Change of the place of payments.
IV.Alternation of the crossing payee.
V.Alternation of the crossing marks.
VI.Alternation in the rate of interest.

Frank William Abagnale, Jr  is an American security consultant known for his history as a former confidence trickster, check forger(check alter er), and impostor between the ages of 15 and 21.

Forgery of the drawer signature:
Forged drawer signature as a general rule when a bank pays a check on which the drawers signature is forged the bank is liable and must credit the drawers account.
If customers negligence sub ordinates contributes to the forgery then the bank is not obliged to pay.