Multiple choice

A cheque of Rs. 500 issued by Mr. A (a customer of your branch) favouring Mr. X is crossed as not-negotiable. X endorses it in favour of Z who deposits the cheque with your branch. What should be done?

  1. Cheque may be collected for Z, as amount is small.

  2. Cheque cannot be endorsed by Mr. X and hence, endorsement is irregular; it should be collected for Z.

  3. Cheque can be collected for Z as not-negotiable crossing does not restrict further transfer.

  4. Z should be advised to return the cheque to X and should not enter into such risk–prone transactions.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The words 'not-negotiable' can be added to general-crossing as well as special-crossing and a crossing with these words is known as not-negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument: The transferee of such a crossed cheque cannot get a better title than that of the transferor (cannot become a holder in due course) and cannot convey a better title to his own transferee, but the instrument remains transferable.

Keep practicing — related questions