Law · Banking Law
A collecting bank receives a cheque through the Cheque Truncation System that is crossed with the words 'Account Payee'. The cheque is drawn in favor of 'ABC Foundation' but the customer, who is the secretary of the foundation, requests the bank to credit the proceeds to his personal savings account. The bank complies without further documentation. When the foundation sues the bank for the loss of funds, which legal defense is the bank most likely to lose due to statutory negligence?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1That the bank is protected under Section 131 for acting in good faith.
- 2That the bank acted without negligence as the 'Account Payee' crossing is not legally binding under the NI Act.✓
- 3That the bank followed the instructions of its customer who had apparent authority.
- 4That the bank acted as a holder in due course.
Correct answer
That the bank acted without negligence as the 'Account Payee' crossing is not legally binding under the NI Act.
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