THE AUTONOMY OF THE BANKER'S OBLIGATION ON BANK DRAFTS AND CERTIFIED CHEQUES

Abstract

A bank draft or certified cheque ("banker's instrument") is a negotiable instrument on which a bank is obligated, used by a paying party in payment to a creditor. The issue explored in this article is the autonomy of the banker's obligation on the banker's instrument, namely whether the payee-creditor may enforce it irrespective of the obligated bank's defences against the paying party, as well as of the paying party's defences against the payee-creditor. From a doctrinal point of view, the questions are whether the payee-creditor can be a holder in due course (so as not to be subject to the obligated bank's defences against the paying party), and whether jus tertii, that is, a defence based on rights ofa thirdparty (here the payingparty), is available to the obligated bankagainsta holdernot in due course. This article answers thefirst question in the affirmative butprovides only apartly affirmative answer to the second. The conclusion is thus that as a holder in due course the-payee-creditor takes the banker's instrumentfreefrom the obligated bank's defences against thepayingparty. At the same time, as a holder notin due course, the payee-creditor holds the instrument subject to the obligated bank's defences against thepaying party; regardless ofwhether thepayingpartyjoins the action ofthe payee-creditor against the obligated bank, the payee-creditor holds the instrument subject also to thepaying party's claimfor the specific restitution of the instrument. Contract defences of the paying party against the payeecreditor, other than the retroactive cancellation oftheir contract leading to such a claimfor the restitution ofthe instrument, are not available to theobligated bank against the payee-creditor. Autonomy is thus not entirely achieved.