A cheque may be drawn payable to a named payee whom does not in fact exist. Section 7(3) Bills of Exchange states that:
"where the payee is a fictitious or non-existing person the bill may be treated as payable to bearer".
The Act does not state what is meant by fictitious or a non-existing payee. It was left for the courts to decide. The courts have decided that fictitious person is not the same as a non-existing person, and to determine whether a payee is existing, non-existing or fictitious, the court rules that it is essential to find what was in the drawer's mind when he signed the bill.
If the drawer knew of the payee at the time he signed the bill and intended the payee to receive payment, then the payee is existing.
If the drawer did not know of the existence of the payee when he signed, then the payee is a non-existing person notwithstanding the fact that there was then an actual living person of that name.
In Clutton v. Attenborough (1897)
, a dishonest clerk induced his employee to sign cheques payable to a person named Brett, by saying that money was owing to Brett. There were however no such debts and the drawer had never heard of anyone of that time. Thus, although the drawer apparently intended payment to pay Brett he did not know of the existing of any such person (though there were plenty of persons in United Kingdom named Brett). The Court ruled that the payee was non-existing and the cheques payable to bearer.
If the drawer is aware of the existence of the payee but does not intend him to receive payment, then the payee is deemed to be fictitious.
In Bank of England v. Vagliano (1891)
, Vagliano's clerk obtained acceptance of his employer to spurious bill which appeared to have been drawn by Vagliano's customers on Vagliano payable to someone known to Vagliano, but were in fact forgeries of the clerk. The clerk forged the payee's endorsement in each case and obtained money. The Cort held that the real drawer of the bills was the clerk who forged them, and he knew of the existence of the payee but did not intend them to receive payment. The payees were accordingly considered fictitious and the bills payable to bearer.
A real fictitious payee can be an imaginary one e.g. Superman, Thundercat, etc.
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