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Negotiable Instruments: Negotiable Cheque Scenario
Case Scenario
Farid purchases electronic goods worth RM12,000 from Jason. As payment, Farid issues a cheque written:
“Pay Jason or bearer”
Jason later owes money to Kumar for construction services. Instead of paying cash, Jason hands the cheque to Kumar as payment for the debt. Kumar accepts the cheque honestly and deposits it into his bank account. The cheque is accepted because it is negotiable and transferable.
The issue arises whether Kumar has the legal right to use a cheque that was originally issued to Jason.
Facts
Q1: Who issued the cheque?
A: Farid.
Q2: To whom was the cheque originally payable?
A: Jason.
Q3: What wording appeared on the cheque?
A: “Pay Jason or bearer.”
Q4: What did Jason do with the cheque?
A: He transferred it to Kumar to settle a debt.
Q5: Did Kumar accept the cheque in good faith?
A: Yes.
Q6: What legal issue arises?
A: Whether Kumar can legally use and enforce the cheque although it was originally payable to Jason.
Application
A cheque payable to:
In this case:
Critical Analysis
This scenario demonstrates the commercial function of negotiable instruments.
Negotiable cheques:
Solution to the Case Scenario
✔ Kumar can legally use and enforce the cheque because:
Key Takeaway
A negotiable cheque:
Case Scenario
Farid purchases electronic goods worth RM12,000 from Jason. As payment, Farid issues a cheque written:
“Pay Jason or bearer”
Jason later owes money to Kumar for construction services. Instead of paying cash, Jason hands the cheque to Kumar as payment for the debt. Kumar accepts the cheque honestly and deposits it into his bank account. The cheque is accepted because it is negotiable and transferable.
The issue arises whether Kumar has the legal right to use a cheque that was originally issued to Jason.
Facts
Q1: Who issued the cheque?
A: Farid.
Q2: To whom was the cheque originally payable?
A: Jason.
Q3: What wording appeared on the cheque?
A: “Pay Jason or bearer.”
Q4: What did Jason do with the cheque?
A: He transferred it to Kumar to settle a debt.
Q5: Did Kumar accept the cheque in good faith?
A: Yes.
Q6: What legal issue arises?
A: Whether Kumar can legally use and enforce the cheque although it was originally payable to Jason.
Application
A cheque payable to:
- “Bearer,” or
- “Order”
In this case:
- The words “or bearer” make the cheque transferable by delivery.
- Jason was allowed to pass the cheque to Kumar.
- Kumar became the lawful holder of the cheque.
- Accepted the cheque honestly,
- Received it as payment for a debt, and
- Had no notice of defects,
Critical Analysis
This scenario demonstrates the commercial function of negotiable instruments.
Negotiable cheques:
- Allow smooth circulation of money substitutes,
- Enable debts to be settled efficiently,
- Promote confidence in commercial transactions.
- A negotiable cheque can move freely from one holder to another.
- Jason did not need to cash the cheque first before paying Kumar.
- The cheque itself functioned as a transferable financial instrument.
Solution to the Case Scenario
✔ Kumar can legally use and enforce the cheque because:
- The cheque was negotiable,
- It contained the words “or bearer,”
- Jason validly transferred it to Kumar.
Key Takeaway
A negotiable cheque:
- Can be transferred from one person to another,
- Allows the transferee to sue in their own name,
- Functions as a substitute for money in commercial transactions.
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