Report No. 11
19. Cheques marked "Account payee."-
The second question is-to what extent we should accord legislative recognition to the practice of marking cheques "account payee". It has been found by experience that a cheque with general or special crossing does not afford sufficient protection to the true owner. It was at one time supposed in England that the addition of words "not negotiable" in the crossing would enlarge the protection. But the Courts have belied this expectation by holding that a cheque crossed 'not negotiable' is still transferable.1 In the meanwhile, businessmen were evolving for their own security a method of crossing cheques "account payee". The object of such crossing is to make it obligatory on the collecting bank to credit the amount received from the paying bank to the payee's account with the former.
But a decision of the Court of Appeal,2 again, introduced a complication. It was held that notwithstanding such crossing the cheques remained negotiable as the words "account payee" did not prohibit transfer under section 8 of the Bills of Exchange Act. But if a cheque crossed "account payee" still remains negotiable, it unnecessarily enhances the duty of inquiry on the part of the collecting bank3 without a corresponding gain in security to the parties, for, the law or practice relating to the "account payee" cheque has not yet been settled. The acceptance of the suggestion that the custom of crossing cheques "account payee" should be recognised will not result in any substantial advantage unless such cheques are made not negotiable by the law. In that case, the payee only would be entitled to deliver the cheque for collection.
Even if his signature is forged by somebody, the collecting bank will credit the amount in the payee's account and the forger would derive no benefit. The risk of the banks would also be minimised, and none but a bank having an account in the name of the payee would then accept such a cheque for collection. We have, therefore, provided4 that if a cheque is marked "account payee" it shall cease to be negotiable and that it shall be the duty of the banker collecting the amount under the cheque to credit it only in the account of the payee named in the cheque.
1. Fisher v. Roberts, (1890) 116 TLR 354 CA.
2. National Bank v. Skills, (1891) 1 QB 435.
3. Chalmers Bills of Exchanges, 12th Edn., p. 254; Byles Bills of Exchange, 21st Edn., pp. 43, 47.
4. Section 144 of App I.
We have added a provision for the protection of a banker who bona fide collects the payment of a cheque in which the crossing "account payee" has been obliterated or altered.
20. Having dealt with the main suggestions, we now proceed to explain the broad features of the revision proposed by us.