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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

A cheque is crossed generally. The drawee banker pays it to a person who is not the true owner, but does so in good faith and without negligence, and the crossing is regular on its face. What is the banker's position under the Negotiable Instruments Act, 1881?

The banker is protected and is treated as if it had paid the true owner. When a crossed cheque is paid in due course, in good faith, without negligence and in accordance with the crossing, the banker and the drawer are placed in the same position as if payment reached the rightful owner.

  1. AThe banker is liable to the true owner for the full amount
  2. BThe banker is entitled to the same protection as if the cheque were paid to the true ownerCorrect
  3. CThe banker is liable only if the drawer requests a refund
  4. DThe banker may recover the amount from the drawer as a loan

Explanation

If a banker pays a crossed cheque in due course, in good faith and without negligence, in accordance with the crossing, the banker and the drawer are placed in the same position as if the cheque had been paid to the true owner. So the banker is protected and the drawer is treated as discharged. Liability to the true owner does not fall on the banker.

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