Crossing of Cheques (Sections 123 to 131A)

An open cheque can be cashed over the counter by whoever presents it, which makes it easy to misuse if lost or stolen. Crossing is a simple safeguard: two parallel lines across the face of the cheque, which direct the paying bank to pay only through a bank. Because the money then goes into a bank account, it can be traced. Chapter XIV of the Act sets out the kinds of crossing, who may cross, the paying bank's duties, and the effect of the words "not negotiable".

1. General Crossing (Section 123)

A general crossing consists of two parallel transverse lines, with or without "& Co." or "not negotiable" between them. The drawee bank must pay it only to a banker (Section 126), so the holder must present it through his own bank account.

2. Special Crossing (Section 124)

A special crossing names a particular bank, with or without parallel lines. The drawee bank must pay it only to the bank named, or to that bank's agent for collection (Section 126). A cheque crossed specially to more than one bank, except to an agent for collection, must be refused (Section 127).

3. Who May Cross (Section 125)

• Drawer: at the time of drawing, generally or specially.
• Holder: may cross an uncrossed cheque generally or specially; may cross a generally crossed cheque specially; and may add "not negotiable" to any crossed cheque.
• Banker crossed to: a bank to which a cheque is specially crossed may cross it specially again to another bank as its agent for collection.
• Collecting banker: a bank receiving an uncrossed or generally crossed cheque for collection may cross it specially to itself.

A crossing is a material part of the cheque, and its unauthorised obliteration or alteration is a material alteration. But crossing under Section 125 is not itself an alteration (Section 87; Topic 28). A bank that pays a cheque whose crossing has been obliterated, where this is not apparent, is protected (Section 89).

4. Duties of the Paying Bank (Sections 126 to 129)

• Generally crossed (Section 126): pay only to a banker.
• Specially crossed (Section 126): pay only to the banker named or its agent for collection.
• Crossed to two banks (Section 127): refuse payment unless one is an agent for collection.
• Payment in due course (Section 128): a bank that pays a crossed cheque in due course, and the drawer if the cheque has reached the payee, are placed in the same position as if the cheque had been paid to the true owner.
• Payment out of due course (Section 129): a bank that pays a generally crossed cheque otherwise than to a banker, or a specially crossed cheque otherwise than to the named bank or its collecting agent, is liable to the true owner for any loss.

5. "Not Negotiable" Crossing (Section 130)

• Still transferable: a "not negotiable" cheque can still be transferred.
• No better title: the transferee takes no better title than his transferor. If the transferor's title was defective, for example a thief's, the transferee's is too, even if he took in good faith and for value. In effect, a "not negotiable" crossing removes the possibility of a holder in due course.
• Must be crossed: the words have this effect only on a crossed cheque.

6. "Account Payee" Crossing and Drafts

• Account payee: the words "account payee" or "A/c payee only" are not mentioned in the Act. They are a direction to the collecting bank to credit the proceeds only to the payee's account. Reserve Bank instructions require banks to collect such cheques only for the payee, and a collecting bank that credits another account is likely to be negligent and lose the protection of Section 131 (Topic 36). Tax law also uses account payee cheques for certain payments.
• Drafts (Section 131A): the provisions of Chapter XIV apply to drafts drawn by one office of a bank on another as if they were cheques (Topic 9).

7. Related Topics and Provisions

• Cheque (Topic 8)
• Paying banker (Topic 35)
• Collecting banker (Topic 36)