Parties to negotiable instrument

Parties to a bill of exchange Drawer: is the person who draws or makes the bill of exchange. Drawee: is the person on whom the bill of exchange is drawn and is directed to pay. Acceptor: the drawee of a time bill becomes the acceptor of the bill after he accepts the same or gives a notice of his accepting the same to the holder thereof.

 Payee: the payee is the person named in the bill to whom the amount of the bill is payable. Holder: is the person who is entitled in his own name to the possession of the bill and to receive or recover the amount due on the bill form the parties liable thereto. Endorser: when the holder of a bill endorses the same to another person, he becomes the endorser of the bill. Endorsee: he is the person to whom the bill has been endorsed by the endorser.

 Drawee in need: when in the bill or in any endorsement the name of any person is given, in addition to the drawee, to be resorted to in case of need, such a person is called drawee in need. Acceptor for honour: in case the original drawee refuses to accept the bill or to furnish better security when demanded. Any person who is not liable on the bill, may accept it with consent of the holder, for honor of any party liable on the bill,

Parties to negotiable instrument

Maker or promisor: is the person who makes the promissory note . Payee or promisee: the person to whom the amount of the promisorry note is payable. Endorser: the person who endorses the PN in favour of another person.

 Endorsee: he is one in favour of whom the PN is endorsed. Holder: is the person who holds the PN at law. He may be the payee or an endorsee or the bearer of the PN.

Parties to a cheque
Drawer: is the person who draws the cheque. He is the customer or the account holder. Drawee: the banker on whom the cheque is drawn. payee: is the person named in the cheque to whom the amount of cheque is payable.

 Holder: is the person who is entitled in his own name to the possession of the cheque and to receive the amount of the cheque. Endorser: holder of cheque who endorses the same to another person is the endorser of the cheque. Endorsee: the person to whom a cheque has been endorsed.

Mandatory function of banks

1. Primary functions
Acceptance of deposits form the public. Lending of funds Creation of credit Remittance of funds

Secondary function
Agency function: Purchase and sale of securities Acting as trustees, executors. Payment and collection of dividend, salaries, pension.

General functions
Travellers cheque Safe custody valuables Teller system Credit cards Tax consultancy. Underwriting of securities housing finance Letter of credit Foreign exchange activities Consultancy function.

Module-3 COLLECTING BANKER

MEANING The collecting banker is the banker who collects cheques drawn upon other bankers for and on behalf of his customers. He is called the collecting banker, as he undertakes the work of collection of cheque.

 There is no legal obligation on a banker to collect cheques drawn upon other banker on behalf of his customers. Collection of cheque has become important because there is a wider use of crossed cheques, The crossed cheques are payable by PB only when they are presented for payment through a banker.

 Banker undertakes to collect even other instruments like bank drafts, BOE, dividend warrants, etc., The function of collection of cheques is performed by banker on behalf of Current a/c and savings bank a/c. The collection of cheque is a service rendered by the banker for which he charges nominal commission (only for outstation cheques)

Collection proceedure
First he receives form his customer the cheque which is required to be collected. He will make an entry in the book meant for recording the cheques sent for collection. Presents the cheque to the drawee or PB either through clearing house (in case of local cheque) or through post (if it is an outstation cheque) for payment.

 If the cheque presented to the PB is honored or realised, he credits the amount realised to his customers a/c The banker informs the customer about the realization of the cheque within a reasonable time. In case cheque presented is dishonoured he gives a notice to his customer about the dishonor of the cheque within a reasonable time. He debits or charges his customers account with a small amount of commission for his service, whether cheque is realised or dishonored.

Status /position/capacities of a Collecting Banker

As a holder for value As an agent

Collecting banker as a holder for value

A collecting banker becomes a holder for value, id he has paid the value of the cheques to the customer before the cheque is actually collected. a collecting banker becomes holder for value when he collects his customers cheque for himself, and not for the customer.

Circumstances under which a banker acts as a holder for value

When he pays the value of cheque presented for collection, even before it is collected. When he expressly allows the customer to withdraw the amount form the account assuming that the amount of the cheque has to be received. When he exchanges the cheque for cash When he receives form the customer the cheque meant for collection in settlement of an existing debt or advance. When the banker exercise lien on the proceeds for the cheque collected.

Rights as a holder for value

The CB has a right to collect the amount of a cheque in his own name as he has already credited the customers account with that amount. It is the right of CB to collect the amount of the cheque from all the endorsers, if the cheque is dishonoured. In case or a forged endorsement, the CB has the right to recover the amount from all the endorses subsequent to forgery of cheques.

 In case or a forged endorsement, the CB has the right to recover the amount from all the endorses subsequent to forgery of cheques. If the customer has no or defective title the CB can recover the amount form all the endorsers of the cheque.

Liabilities of the CB as a HFV

He is liable to compensate the true owner, if he collects an uncrossed cheque of a customer bearing a forged endorsement. If he collects the cheque with defective or no title. The CB has to compensate to the true owner.

Precautions to be taken as a HFV

CB must take an undertaking from the customer stating the he will pay the amount in the event of dishonour. CB must present the cheque for payment as soon as possible to recover the amount. If cheque is dishonored he must sent a notice of dishonour to all the endorsers.

C.B As an Agent of his customer

he acts as an agent when he credits the amount of the cheque to the customer account only after receiving the same form paying banker. the banker collects cheque on behalf of customers and not for himself.

Liabilities of CB as an agent
He should execute the collection work honestly and without negligence. If any loss is caused du to negligence, such loss should be borne by the CB When a CB collects a cheque for his customer having defective or no title and forgend endorsement, he is liable to the true owner of the cheque as per the doctrine of conversion he is not liable to pay when he gets statutpory protection.

Rights of CB as an agent
While collecting a cheque for customer he cannot assert any rights of a holder for value. his rights or title of the cheque is same as that of the customer. He will not enjoy any right of his own Whatever good or defective title his customer carries, the same title he possesses as he acts as an agent.