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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

Meena draws a cheque originally expressed to be payable to bearer. Ketan, the bearer, writes on its back an indorsement purporting to restrict further negotiation and hands it to Lalit, who presents it. The bank pays Lalit in due course. Which statement is correct under Section 85?

The bank is discharged. Where a cheque is originally payable to bearer, payment in due course to the bearer discharges the drawee, notwithstanding any indorsement in full or in blank, even one purporting to restrict or exclude further negotiation.

  1. AThe bank is not discharged because the restrictive indorsement binds the drawee
  2. BThe bank is discharged by payment in due course to the bearer, notwithstanding the indorsementCorrect
  3. CThe bank is discharged only if the indorsement was in blank
  4. DThe bank is discharged only if Ketan confirms the payment in writing

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 indorsement, whether in full or in blank, and even if it purports to restrict or exclude further negotiation. So the restrictive indorsement does not prevent discharge.

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