A bank pays a bearer cheque to the person presenting it, although the circumstances give it reasonable ground to believe that he is not entitled to receive payment. How is this payment treated under…
Question and options
A bank pays a bearer cheque to the person presenting it, although the circumstances give it reasonable ground to believe that he is not entitled to receive payment. How is this payment treated under section 10 of the Negotiable Instruments Act, 1881?
It is not a payment in due course, so no discharge results
It is a payment in due course, as a bearer cheque may be paid to anyone
It is a payment in due course, as the drawer's signature was genuine
It is not a payment in due course, but the bank may still debit the drawer's account
Answer and explanation
Section 10 of the Negotiable Instruments Act, 1881 treats as payment in due course only a payment made according to the apparent tenor of the instrument, in good faith and without negligence, to a person in possession of it in circumstances that do not afford a reasonable ground for believing that he is not entitled to receive payment. Payment in accordance with the apparent tenor, or to the bearer, is not enough when such a reasonable ground exists, so the bank is not discharged by it.
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