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CS Executive · Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

A cheque is originally drawn payable to bearer. It reaches Meena, who endorses it "Pay Kiran only" and delivers it to Kiran. The bank pays the cheque in due course to a person presenting it as bearer. Is the bank discharged?

Yes, the bank is discharged. For a cheque originally expressed payable to bearer, payment in due course to the bearer discharges the drawee notwithstanding any endorsement, even one that purports to restrict or exclude further negotiation, so the 'Pay Kiran only' words do not change that.

  1. ANo, because the restrictive endorsement bound the drawee to pay only Kiran
  2. BYes, because a cheque originally payable to bearer is discharged by payment in due course to the bearer despite any endorsement, even one restricting further negotiationCorrect
  3. CYes, but only if the bearer first obtains Meena's consent
  4. DNo, because a bearer cheque becomes an order cheque once endorsed in full

Explanation

Section 85(2) says that where a cheque is originally payable to bearer, the drawee is discharged by payment in due course to the bearer, notwithstanding any endorsement in full or blank, even one purporting to restrict or exclude further negotiation. So the restrictive words do not protect against the drawee's discharge.

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