E can look to C and the subsequent indorser D for the $200 he gave for the E can sue C or D for

or the $200 or sue either A or B for the $20 (the

cheque. But he has no right against A and B who did not make or authorise original tenure).
the alteration
 Types of Alteration

Apparent alteration Non-Apparent alteration

Intending holder on scrutinizing the document with reasonable Alteration is executed so cleverly that is not visible on reasonable
care - would observe that it has been altered. scrutiny.

Effect - Only a person who made the alteration Effect - The holder of the cheque has the right to enforce the
and all subsequent parties will be bound by cheque according to its original tenor.
the cheque as it is altered.

A RM20 B RM20 C RM20

0 D RM20
0 E A RM20 B RM20 C RM20
0 D RM20
0 E
 Customers (Drawers) Duty of Care
Against Fraudulent Alterations
General Rule
Customer of paying banker (drawer)
would not be liable upon the cheque if
the cheque has been fraudulently
altered by a dishonest payee/holder.
The paying bank (drawee bank)
cannot debit the account of its
customer (drawer)
Drawer's Duty of Care
Drawers owes a duty of care towards
the paying bank (Drawee/paying
Bank) to take precautions in drawing
up the cheque.
If a dishonest holder alters the amount
of the cheque due to the drawers
negligence in not properly drawing up
the cheque, the paying bank (drawee)
is entitled to debit the customers
account with the full amount
Barbour Ltd v Ho Hong Bank (1926)
The manger drew a cheque for $2520.
The figure was altered to $12520. The
bank paid out the altered sum. Held the
respondent (Drawer) had to bear the loss
because the manager was negligent in
drawing the cheque
London Joint Stock bank v
Macmillan
A sum was stated in figures but not in
words, 2 pounds was changed to 120
pounds . Held the bank could debit
the firms account with 120 pounds, the
partners had been negligent by
leaving blank spaces for the amounts
in words to be altered.
 Protection of Collecting Bank
Definition
Bank which collects the amount of
A collecting bank may be
liable on 2 grounds: -
the cheque fr. the paying bank on
behalf of its customer.
Paying bank is under a duty to pay
the amount and credit its customers
account with such amount
Risks Protection
To minimize the risk S 85 of BEA
protect the C/Bank if he collects
payment on behalf of his
customer who is actually not
To its customer for breach entitled to the payment.
of duty
Due to the failure of the
collecting bank to collect the
amount when it was instructed
to do so.
Conditions:
(a) Must acted for its customer S 85
To the true owner for CUSTOMER:
conversion Who has an account with a bank
When the collecting bank Becomes a customer as soon as he
improperly collects on behalf opens an account with the bank.
of its customer who was not
entitled to the money
(b) Must acted in good faith S 95
The C/bank must acted honestly in
collecting the amount on behalf of his
customer.
(c) Must acted without negligence
If the banker acted in good faith but
negligently the banker will not be
protected under S 85.
 The Collecting banker is negligent if he is not making
proper inquiries in the following suspicious
circumstances:
Examples:
a) Where a customer presents a cheque in favour of
his company, but to be credited into a private
account.
b) Where a customer presents a cheque in favour of
his official capacity, but to be credited into his private
account.
c) Where a customer presents a cheque in favour of
his principal, but the sum is to be credited into his
own account
d) Where a customer presents a cheque crossed
account payee and he is not the payee named on
the cheque
e) Where a customer pays in a cheque for an
unusually large amount, which is out of character with
his normal circumstances.
f) Opening an account without enquiry into the
identity and circumstances of the customer.
Cases
Lyood Bank Ltd v Charted Bank of India, Australia
& China
An employee of the plaintiff bank, who had authority to
sign on behalf of his employer, drew a total of 19
cheques which were sent to the defendant bank for
collection with a request to credit the amount into his
private account. Held - the defendant bank was
negligent in not making inquiries because the amount
credited were such that they could not be payments of
salary.
MIdland Bank Ltd v Reckittt & Ors
A solicitor fraudulently drew cheques on the account
of his client. these cheque were paid into the
solicitor's account.
Held: The bank was negligent in not questioning the
crediting of the cheques. the situation should have put
them into suspicion, as it was not the solicitor's
money.