comlaw202 law of negotiable instruments

Commercial Law 202: Notes: Law of Negotiable Instruments.

Contents

Questions:......................................................................................................................................................................................................................................................................... 2A. Course text Book:.............................................................................................................................................................................................................................................. 3B. ACTS in course.................................................................................................................................................................................................................................................... 3C. CASE LAW............................................................................................................................................................................................................................................................. 3D. Negotiable Instruments, Negotiability Concept and Definitions: Part 1 Chapter 1&2, Definitions Part2 sect 1.....................................................3

A. Definitions: from Part 2 ch1...................................................................................................................................................................................................................... 3B. Negotiable Instruments: part 1 ch 1....................................................................................................................................................................................................... 5

a) INTRODUCTION: Bills of Exchange Act 34 of 1964.................................................................................................................................................................5b) SPECIAL (ILLOGICAL) IMPLICATIONS AND CIRCUMSTANCES OF CHEQUES/BILLS to take note of:...............................................................5c) INDICATE WHEN A DOCUMENT WILL BE REGARDED AS A LIQUID DOCUMENT FOR PURPOSES OF PROVISIONAL SENTENCE :. .5d) EXPLAIN THE ESSENTIAL CHARACTERISTICS OF NEGOTIABILITY................................................................................................................................5e) DISTINGUISH IN DETAIL BETWEEN THE FOLLOWING TYPES OF DOCUMENTS......................................................................................................6

D. CHAPTER 2/WEEK2 :FORMS AND INTERPRETATIONS OF BILLS OF EXCHANGE. Sec 2-19 of act...........................................................................6

a) DISTINGUISH IN DETAIL BETWEEN CONCEPTS LIABILITY AND VALIDITY...............................................................................................................6b) Mention the requirements for cheque (2 differences to bills).............................................................................................................................................6c) Mention requirements for promissory note (3 differences to bills).................................................................................................................................7d) Mention requirements for bill of exchange..................................................................................................................................................................................7e) Differentiate between cheque, promissory note and bill of exchange.............................................................................................................................7f) Explain the effect if different parties to a bill are the same person, or drawee a fictitious person or not having capacity to contract.

7g) Discuss the requirements as to drawee......................................................................................................................................................................................... 7h) Discuss requirements as to payee.................................................................................................................................................................................................... 7i) Explain the effect of omission of date in a bill.............................................................................................................................................................................8j) Define an inchoate document............................................................................................................................................................................................................. 8

E. CHAPTER 3 /WEEK3 CAPACITY AND AUTHORITY OF PARTIES..............................................................................................................................................8

a) Explain the effect of a forged and unauthorized signature...................................................................................................................................................8b) Explain the effect of principles governing payment of uncrossed cheques, with regard to the case of a forged drawers signature...9c) Explain the principles governing payment of uncrossed cheques , with regard to the case of a forged endorsement..............................9

E. Consideration for a Bill:.................................................................................................................................................................................................................................. 9

a) DEFINE THE WORD VALUE...................................................................................................................................................................................................................... 9b) DEFINE THE HOLDER IN DUE COURSE.............................................................................................................................................................................................. 9c) DEFINE AN ACCOMMODATION PARTY TO A BILL........................................................................................................................................................................9d) DISCUSS THE REQUIREMENTS FOR A HOLDER IN DUE COURSE...........................................................................................................................................9e) DISCUSS THE PRESUMPTION AS TO VALUE AND GOOD FAITH...........................................................................................................................................10

F. Chapter 5 Week 5 Negotiation of a Bill. Sec 29-36...........................................................................................................................................................................10

a) Explain How a bill is Negotiated.......................................................................................................................................................................................................... 10b) Explain the requirements of a valid indorsement....................................................................................................................................................................... 10c) distinguish between the different kinds of indorsements.......................................................................................................................................................11d) Discuss the regularity of indorsements with referral to case law........................................................................................................................................11e) shortly discuss the rights and powers of the holder...................................................................................................................................................................11

Week 6 GENERAL DUTIES OF THE HOLDER 37-50....................................................................................................................................................................................12

1 ComLaw 202Law of Negotiable Instruments : Own Notes

MENTION INSTANCES IN WHICH PRESENTMENT FOR ACCEPTANCE IS necessary IN ORDER TO RENDER A PARTY LIABLE ON THE INSTRUMENT sect 37 (only for bills, not cheques or notes).............................................................................................................................................................12TIME sect 37 for 1 and sect 38 for 2(only for bills, not cheques or notes).................................................................................................................................12shortly discuss rules as to presentment for acceptance and excuses for non-presentment. sect 39(only for bills, not cheques or notes)...12-own notes-If a bill is not accepted in customary time after it has been presented for acceptance by the holder, then it must be treated as ‘dishonoured by non-acceptance’ or else holder looses his right of recourse against drawer and indorsers sect 40 ( only for bills, not cheques or notes)................................................................................................................................................................................................................................................. 12-own notes-a bill is dishonoured by non-acceptance if it is presented for acceptace and this acceptance is refused or cannot be obtained or presentment for acceptance is excused , or if the bill is simply not accepted.Then the consequences are a right of recourse aginst the drawer&indorsers and no presentment for payment is necessary. sect 41 ( only for bills, not cheques or notes).................................................12sec 42 explain the duties as to and consequences of qualified acceptance. sect 42 (only for bills, not cheques or notes)....................................13sect 43 rules as to presentment for payment sect 43 (for cheques and bills and promissory notes).............................................................................13-one notes-presentment for payment by bank of a cheque–.............................................................................................................................................................13-own notes-sect 44 when presentment for payment may be delayed or dispensed with – not in syllabus- basicly 1-if beyong control but no negligence/misconduct etc.-2-with exercise sufficient diligence presentment cannot be effected 3-drawee not bound to somehow pay wat drawer says he must &holder thinks he wont pay-3-drawee or acceptor insolvent-,4-indorser no reason expect pay or something weird(see book)- 5-express or implied waiver on the bill that it must be presented for payment , either not necessary at a specific time or not have to in a certain way............................................................................................................................................................................................................................. 13sect 45- when bill dishonoured by non-payment and consequences- re-read no time –basicly if not paid or excused =right of recource against drawers & indorsers........................................................................................................................................................................................................................... 14sect 46 explain notice of dishonour and the effect of failure to give such notice (for cheques and bills and promissory notes)......................14sect 47 explain rules of notice of dishonour sect 47 (for cheques and bills and promissory notes)...............................................................................14-own notes-sect 48: when notice of dishonour may be delayed or dispensed with- circumstance s beyond control(no negligence,misconduct etc allowed ……2 notice can not be given to or does not reach person ….3-by express or implied waiver before or after time notice was to be given….4 if drawer&drawee same person/fictitious/no capacity/…5where you must&do present to drawer himself,not drawee…6-where drawee or acceptor is not bound to pay(between him and drawer) …7if drawer has countermanded payment so “stopped payment” …8if indorser knew drawee was fictitious or drawee no capacity to contract and indorser knew this when he indorsed he need receive no notice ….9-“???where the bill was accepted or made for the accomodation of such indorser???”. …10 where bill is presented to indorser himself,he need receive no notice..................................................................................................................................14-own notes-sect 49 – protest of a bill – done by a notary –makes better ‘proof’ sort of -various rules to be read over –no time to note here- not in syllabus............................................................................................................................................................................................................................................ 15

CHAPTER 6 / WEEK 6 GENERAL DUTIES OF THE HOLDER...................................................................................................................................................................15

EXPLAIN THE LIABILITY OF THE DRAWEE AND ACCEPTOR..........................................................................................................................................................15Liability of drawer and indorser :................................................................................................................................................................................................................. 15Liability of a stranger signing a bill.............................................................................................................................................................................................................. 15liability of the signer of an aval...................................................................................................................................................................................................................... 15SEC 55 mention damages recoverable from parties to a dishonoured bill.................................................................................................................................16sec EXPLAIN LIABILITY OF TRANSFEROR BY DELIVERY..................................................................................................................................................................16

Chapter 8/9 week 8/9 discharge of bill Sec 57-62......................................................................................................................................................................................16

explain the methods specified by the act whereby an instrument is discharged....................................................................................................................16sect ? distinguish between discharge of the instrument and the discharge of one or more of the parties...................................................................17shortly discuss the holders rights if bill or note is lost or destroyed ...........................................................................................................................................17shortly discuss the rules as to a bill in a set with reference to sect 69.........................................................................................................................................17liability of a drawee who certifies a cheque............................................................................................................................................................................................. 17The duty to reconcile bank statement and take reasonable care with blank cheque forms...............................................................................................18revocation of a banks authority..................................................................................................................................................................................................................... 18crossing a cheque: as ‘not negotiable’ or ‘not transferable’ etc........................................................................................................................................................18if a crossed cheque marked not negotiable cheque is lost or stolen the true owner can claim from any subseqent possessors.......................18protection of a bank who pays a crossed cheque...................................................................................................................................................................................19

Questions:


1) For notice of dishonor- with a cheque, how does it work? Must it be like said pg 291 , or in own notes “ sect 47-rules as to notice of dishonor a) On next business day ; so NOT on same business day or how?if bank forgets to post on next business day, so 2 days late, or

addresses it wrong? Then you loose out or what if youy got the cheque?b) Pg 295 (d) what means “???where the bill was accepted or made for the accomodation of such indorser???”.

A. Course text Book:

Prescribed textbook :Handbook on the Law of Negotiable Instruments: by Leonard Gering assisted by Douglas G. Tobias. :JUTARecommended reading : Authors : Try 1-Cowen or 2- Govindjee or 3- Chalmers(digest of) (different books from each author)

B. ACTS in course

A. Bills of Exchange Act 34 of 1964

C. CASE LAW

1) Week 5- CASE LAW : Silcan Estate & Finance co. vs Astra Caféa) The court referred to the following authorities in answer to the question : when is an indorsement irregular:

i) caveat emptor : Arab bank vs Ross : If the bill itself conveys a warning : caveat emptor (beware the buyer) from Arab bank vs Ross

ii) on the instrument OR any omission /suspicious/irregularities: Another court said; if there is anything on the instrument OR any omission , which would make the person receiving the bill suspicious, then one must say he did think that it might have irregularities, it is not as if he did not think there could be irregularities.

iii) not the actual indorsement / is irregular :Another court said : if it seems that any indorsement on the bill is not the actual indorsement of that specific payee then it IS IRREGULAR

D. Negotiable Instruments, Negotiability Concept and Definitions: Part 1 Chapter 1&2, Definitions Part2 sect 1

A. DEFINITIONS: FROM PART 2 CH1

1) CHEQUE: A bill drawn on a bank, payable on demand. : Where a bill , in the context of a cheque , would be: An (1)unconditional (2)order in (3)writing, (4)addressed by one person to a bank, (5)signed by the person giving it, (5)requiring the bank to to pay on demand, or at a fixed or determinable future time, (7)a sum certain in money to a (8)specified person or his order , or to bearer..

2) BILL OF EXCHANGE : A Bill of Exchange is an UNCONDITIONAL ORDER in writing , addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to a specified person or his order, or to bearer.a) IF it orders any act to be done in addition to the payment of money, it is not a bill, or if it does not comply with requirements of act

in subsection 1 it is not a bill.b) An order to pay out of a particular fund is not unconditional within the meaning of subsection 1, but an unqualified order to pay

coupled with –i) An indication of a particular fund out of which the drawee is to reimburse himself, or of a particular account to be debited with

the amount,ii) A statement of the transaction which gives rise to the billiii) Or a statement on the bill that it is drawn against specified documents attached thereto for delivery on acceptance or on

payment of the bill, as the case may be, oriv) A statement on the bill that it is drawn under or against a specified letter of credit or other similar authorityIS seen as unconditional within the meaning of the said subsection.

c) A bill is not invalid by reason i) That it is not dated


ii) That it does not specify the value given , or that any value has been given therefor;iii) That it does not specify where it is drawn or where it is payable

d) If the sum is expressed in words and figures, if they are different, the one in WORDS takes precedence.(not invalid)e) A sum of money can be also expressed –validly as a bill-;

i) With interest( if not said from when its from the date of the bill, or if not said then from date of issue of the bill) ORii) By stated installments and upon default of any installment the whole becomes due ORiii) According to the rate of exchange indicated, or to be ascertained, as directed, by the bill.

3) ‘AT SIGHT’ , :means when the drawee who might be the acceptor , ie the bank etc, actually “sees it”/ ie: gets it presented to them.4) PAYABLE ‘ON PRESENTATION’ or ‘ON DEMAND’ : all means on demand actually.5) DRAWEE BANK: the bank which is unconditionally instructed by one person to pay a specified person or his order or bearer , a certain

sum of money, on demand, in a written order signed by the person drawing the cheque up(the drawer). 6) DRAWER: THE person who is originally giving and issuing the bill or cheque, who gives instruction to a bank or another person to pay

a specified person a sum certain in money , and who must signs the cheque, or on whos behalf the cheque is signed.7) PAYEE : The person who is to be paid when presenting a negotiable instrument for payment.When a person gives instruction to pay a

specific person or promises to pay specific person a sum certain in money, it is the person who must receive the payment eventually.8) HOLDER: means the payee or indorsee of a bill who is in possession of it, or the bearer thereof-

a) Some facts: so EVERY HOLDER IS A POSSESOR. But if a holder , who is the true owner, pledges it to another as security: the pledgee becomes the new holder, but the pledgor remains the only OWNER.BUT if indorsed then the indorser is not the Owner or Holder anymore, the indorsee is now both.

b) Some facts: a holder can be a thief who stole it , in the case of an instrument which is payable to bearer.c) Some facts: if made out payable to order, only the holder can negotiate the instrument.d) Some facts: date of issue is missing – any holder can insert it for: if payable after a certain period after date of issue.e) Some facts: YOU CANNOT BE A HOLDER WITHOUT FIRST HAVING POSSESSION-YOU MUST HAVE POSSESSION.f) Rights: 1-to sue on the instrument in his own nameg) Rights: 2-give a valid discharge to a person who makes a payment in due course.h) Rights: 3- present cheque for paymenti) Rights: 4- to negotiate it if uncrossed

9) POSSESSOR: person who has the bill/cheque /instrument in his hands, who actually has it.(he could be the legal owner or even a thief, he must just have it)

10) HOLDER FOR VALUE: A holder takes a bill for value if he takes it under onerous title.: this means if he gives a benefit in return for receiving the bill, as a quid pro quo.

11) HOLDER IN DUE COURSE.: a) A holder in due course is a holder who has taken a bill, under the following circumstances:also a holder in due course receives the bill

free of equities.i) Complete and regular on the face of it ii) Overdue :Must become the holder before it was overdueiii) Dishonoured : If previously dishonoured he must not have notice thereof (must not know this)iv) Good Faith :Must have taken the bill in good faithv) ‘and for Value’ :Must have taken the bill in return for value, or for quid pro quovi) Defect Title :Must have had no notice of any defect in title of person who negotiated the bill to him. AT THE TIME WHEN IT WAS

NEGOTIATED TO HIMvii) Negotiated: it must be negotiated to the new holder by the indorsement or by mere delivery for a bearer cheque.

viii) In particular: his title is defective if (he is not a holder) if he obtained the bill or acceptance thereof by fraud or other unlawful means, or for an illegal consideration, or in breach of faith.

ix) If value was not given – new holder only gets the Rights: of last holder in due course 12) LIQUID DOCUMENT: definition: doc in which the person (1) unconditionally acknowledges , (2)over his signature,or that of his agent,

(3)his indebtedness to the creditor in an (4)ascertained amount of money, the payment of which is (5)due to the creditor. 13)BEARER : person in possession of a bill which is payable to bearer.

a) A bearer cheque : it says on the face either or similar to: Pay Bearer | Pay.A.Brown or bearer. | Pay cash or Bearer | Pay Wages or Bearer.

14)NOTE : promissory note15)INDORSEMENT: means an indorsement completed by delivery( signed on the face of it in orderto…)

a) In Blank: b) Special Indorsement c) Restrictive indorsement d) Conditional Indorsement.

16) ORDER INSTRUMENT : substitute for words: payable to a specific person or his order.(see definition below)a) Note: this does NOT cancel ‘to Order’ : |Pay A. Brown or Order | it could still be indorsed as per law somehow! Must be “ONLY’ or “

NOT TRANSFERRABLE” to prohibit indorsement.b) Can use any following wording |pay to the order of A.Brown| Pay A.Brown |Pay A.Brown or Order| Pay A.Brown or bearer|c) The clearest example of an ORDER is the word ’Pay’


17) IS DRAWN UPON: means the bank who is the drawee/acceptor18) NOT TRANFERABLE : if a chequ has bot not-transferable as well as ‘or order’ on it , then the ‘not transferrable’ takes precedence over

the ‘or order’19) DELIVERY; transfer of possession from 1 person to another20) PAYMENT IN DUE COURSE: made at or after maturity, to holder, if title defective then unknown by payer(bank) at time21) QUID PRO QUO: 22) CAUSA ONEROSA: 23) EX FACTO JUS ORITUR:

B. NEGOTIABLE INSTRUMENTS: PART 1 CH 1

a) INTRODUCTION: Bills of Exchange Act 34 of 1964.

1) Defines and deals with the following 3 most common examples of NEGOTIABLE INSTRUMENTS : 1- Cheques , 2-Bills of Exchange , 3-Promissory Notes.A instrument can serve as an instrument of credit when the date for payment is written on it as a future date.There are other instruments ,other than the main 3, which are classified as neg.instruments , but they are not governed by the Bills of exchange act and the law reading them is improperly developed.

b) SPECIAL (ILLOGICAL) IMPLICATIONS AND CIRCUMSTANCES OF CHEQUES/BILLS to take note of:

1. If you REQUEST a creditor to post a cheque by post:, then you bear the responsibility if the cheque gets lost.But if he posts it of his own accord, or to a different address to the one you specified(even if the one he sent it to is you residential address) then the responsibility for the loss by the post-office is the sender’s/payer’s.( so for late payment or not paid in time or something like that problems)

2. If an offer of compromise is written on the cheque: by writing “in full payment” on the face , so maybe for an account of 500 you send a cheque for 200 and write ‘in full payment’, if the payee accepts&banks it then he is deemed to have accepted the offer.If he does not accept the compromise then he MAY NOT BANK THE CHEQUE,.One cannot get provisional sentence for a cheque where you do not accept the offer of compromise but want to bank the cheque anyway as part payment for the full debt.Even if debtor sends 1 current & 5 post dated cheques, and you do not accept the 5 post dated cheques, then you cannot try get provisional sentence on the post-dated ones ,like if the payer ‘stops payment’ on them or even if he dosnt, because you did not accept the offer in the first place.2.1. So payment in terms of an offer of compromise must be disringuished from payment as an admitted liability.The question is if it

was intended that the offer is a compromise or whether it was not an offer of compromise.So the solution is if it is an “ADMITTED liability” then any condition attached as stated above would not be binding like if it was an attempt by the debtor to attach a condition thereto that it was was in full settlement.- the creditor can keep the mponey and sue for the balance-.the key is ADMITTED LIABILITY.

3. A cheque does not HAVE to be accepted as payment if the seller does not want to- one must check the contract of sale-even if it was verbal for clues as to what is/was accepted.3.1. A funny (odd) problem though is :But clauses of old shipping contracts used in todays-copied- contracts where it says ‘cash’ is

seen today in the light of todays practice as meaning a cheque as well as long as it does not bounce.4.

c) INDICATE WHEN A DOCUMENT WILL BE REGARDED AS A LIQUID DOCUMENT FOR PURPOSES OF PROVISIONAL SENTENCE :

1) LIQUID DOCUMENT: Valid cheques and notes which satisfy he following requirements. : definition: doc in which the person (1) unconditionally acknowledges , (2)over his signature,or that of his agent,(3)his indebtedness to the creditor in an (4)ascertained amount of money, the payment of which is (5)due to the creditor.

2) Docs that fall in the category of liquid docs entitle the holder to bring an action for provisional sentence. Valid Cheques, promissory notes and bills of exchange which satisfy the definition of each as per the Bills of Exchange Act, all fall within the category of Liquid Documents

3) It establishes the indebtedness of the debtor without the necessity of evidence extrinsic thereto.

d) EXPLAIN THE ESSENTIAL CHARACTERISTICS OF NEGOTIABILITY.

1) TRANSFERABILITY: A negotiable instrument must be transferable 1 person to another. It must also be by 1 of the following 2 methods ,or it is not classed as a negotiable instrument. (eg a certain types of share certificate which are transferrable by registration of certificate at the company’s books, is not negotiable since it needs extra thing to be done)a) Delivery: instruments that can be transferred by delivery alone, called bearer instruments, eg a bearer cheque.


b) Indorsement & delivery : instruments that can only be transferred by delivery AND indorsement, called order instruments -they must first be indorsed before they can be transferred.eg: a cheque made out to a specific person or his/her order.

2) TRANSFER FREE FROM EQUITIES :means the person to whom the cheque is transferred can be conferred a better title than the person who transferred it to him had in the first place. So if the transferor obtained it by fraud, or there is some other problem with his ownership of the cheque, the person who wrote out the cheque or any other holders in due course before the person to whom it was transferred free of equities, must still pay the new holder in due course anyway. BUT in order to obtain benefit of transfer free of equities, the following requirements must be met:a) Deliverable state: this means that if the cheque had to be endorsed in order to be transferrable, and it was not indorsed, then it is

not in a deliverable state and thus cannot be transferred free of equities.b) Good Faith: The person receiving it must not suspect that there are any irregularities or fraud concerning the cheque at 2 times :

1- when he receives cheque as payment 2- and when value is given by him in return. c) Value: the tranferree must give value in return for the cheque, or else if he gets it for free he will only get the rights of a mere

cessionary, and thus not free of equities.this rule is onlythere to facilitate the free flow of trade and make payment easy-not for academic thinking.

e) DISTINGUISH IN DETAIL BETWEEN THE FOLLOWING TYPES OF DOCUMENTS.

A. ORDER DOCUMENT: Negotiable instruments of payment that require for their transfer an act in addition to delivery, namely , an indorsement.

B. BEARER CHEQUE: cheque which is a negotiable instrument of payment that is transferable by simple delivery alone.C. NON-TRANSFERRABLE CHEQUES: a cheque which is not classed as a negotiable instrument , but is still a liquid document, and is not

transferrable because either it bears the words “Not transferrable” on the face of it, or it is worded saying “pay B.Brown ONLY” ,where the word ‘only’ prevents it from being transferred.

D. CHAPTER 2/WEEK2 :FORMS AND INTERPRETATIONS OF BILLS OF EXCHANGE. Sec 2-19 of act.

a) DISTINGUISH IN DETAIL BETWEEN CONCEPTS LIABILITY AND VALIDITY.

1) VALIDITY: validity refers to: A cheque, Bill of exchange and a promissory note are each defined in a particular way in the Bills of Exchange Act. In order for the instrument to be Valid it must comply with the relevant statutory definition definition.It will then be VALID, even if no person is actually liable (thereon.)to pay it & OTHER relevant parts of the act.

2) LIABILITY: (3 examples of liable parties here!) liability refers to whether anybody is liable to pay a cheque or other negotiable instrument. It could happened that a Cheque is Valid , but nobody is liable to pay it yet because the maker has not issued it yet.So if it has not been delivered yet , neither the drawee bank nor the drawer is yet liable thereon.a drawee may also become liable by accepting a bill in which case he is the ‘Acceptor’.A payee may become liable by indorsing the cheque in which case he is the ‘Indorser’. The requirements for liability are:a) Signatureb) Authority to sign the cheque(eg on behalf of a company)c) Delivery d) Capacity to Contract.

b) Mention the requirements for cheque (2 differences to bills)

1) A bill drawn on a bank and payable on demand2) Requirements for a cheque; same as for bill of exchange exept 5) and 8)= bank and ‘on demand’.

i) Unconditional orderii) Orderiii) Order In Writingiv) Must be addressed from one person to a BANK (the DRAWEE, who becomes the ACCEPTOR when he signs it) { in place of

‘another person’}v) Order must be signed by the person giving it(the DRAWER)vi) Must be payable to a specified person or his order or bearer.(the PAYEE)vii) Sum payable must be : Sum certain in money


viii)ON DEMAND {in place of ‘ Payable on demand, or at a fixed and determinable future time’.}

c) Mention requirements for promissory note (3 differences to bills)

1) UNCONDITIONAL PROMISE2) PROMISE { not ‘order’}1-3) PROMISE In Writing4) Must be addressed from one person to another person(The Drawee) {is not addressed to another person}2-5) PROMISE Must be signed by the person giving it (ie :the MAKER {not the ‘drawer’})3-6) Must be payable to a specified person or his order or bearer.(THE PAYEE)7) Sum payable must be : Sum certain in money8) Payable on demand, or at a fixed and determinable future time.

d) Mention requirements for bill of exchange

1) Unconditional2) Order3) Order In Writing4) Order Must be addressed from one person to another person(the DRAWEE, who becomes ACCEPTOR when he signs it)5) Order Must be signed by the person giving it(the DRAWER)6) Must be payable to a specified person or his order or bearer. (THE PAYEE)7) Sum payable must be : Sum certain in money8) Payable on demand, or at a fixed and determinable future time.

e) Differentiate between cheque, promissory note and bill of exchange

1) Define the REQUIREMENTS of a Bill of exchange in point form, to show what it is, then explain – note for each one of the above put ALL the differences to each other anyway- for the exam marker to see it clearly!

2) A cheque is defined in the act as a bill , which is addressed to a bank, and is payable on demand, so the REQUIRENTS for a cheque are the same exept point xyz…..so and so

3) Promissory note : say : first a promissory note is not a order like the other 2, it is a promise. Requirements that apply to … are the same exept for (1) PROMISE not order (2) MAKER (3) not addressed to and instructing another person or bank to pay

f) Explain the effect if different parties to a bill are the same person, or drawee a fictitious person or not having capacity to contract.

1) The HOLDER may at his option, treat it as a Bill of exchange, or as a PROMISSORY NOTE,a) If treated as a promissory note it means he may treat it as a unconditional promise to pay by the drawer.b) The law says a bill may be made payable to the drawer or to the drawee, that is allowed, but the rule above will apply.

g) Discuss the requirements as to drawee

1) Drawee must be 1-named or 2-otherwise indicated with 3-reasonable certainty in a bill.2) A bill may be addressed to 2 or more drawees whether they are partners or not, but an order addressed to 2 or more drawees in the

1-alternative,or two or more drawees in 2-succession is not a ’ bill of exchange’.

h) Discuss requirements as to payee

1) If a bill is not payable to bearer, the payee must be (1)named or (2)otherwise indicated with (3)reasonable certainty therein.( note – not absolute certainty!)

2) A bill may be drawn payable to:a) 2 or more payees jointlyb) To 1 of 2, or one or some of several, payees in the alternativec) To the holder of an officed) If payee is a 1-fictitious or 2-non-existing person, the bill may be treated as payable to bearer.


i) Explain the effect of omission of date in a bill

1) A bill is (GENERALLY) not invalid because of omission of the date2) OR : for a bill which is to be 1-paid on or after a certain date where the date has been omitted,or 2-after a certain period following it’s

acceptance where the date of acceptance has been omitted , any HOLDER may insert the true date of acceptance or issue and that bill SHALL BE PAYABLE ACCORDINGLY, provided that:a) ANY Holder : in good faith and by mistake, inserts wrong date it shall be paid accordingly ORb) Any holder in due course who gets it after a wrong date was inserted in such a way, it shall be paid as if it were the true date.

3) (If a bill is ANTE-DATED OR POST –DATED, it is NOT INVALID) : this is because it is seen as a valuable instrument of credit in the merchant community, and the “ON DEMAND’ requirement in the definition DOES NOT APPLY to this circumstance. You can also become a holder in due course before the ‘date’. A bank can pay a cheque out before the post - dated date BUT is just not entitled to debit the drawers account until the post-dated date.

4) If due date of any bill is not a business day, it moves forward to next business day. (not particularly post dated thing but for any ‘bill’ with a due date.-not necessarily a cheque.

5) The START date from which it is calculated is excluded, but END date of payment is included, in any calc. for “days from date” of when a payment must be effected, although the period legally begins to run ON the START date.

j) Define an inchoate document

1) An inchoate document is a bill which is wanting or missing any MATERIAL particular.2) The person IN POSSESSION has a PRIMA FACIE authority to fill up the omission in any way he thinks fit., BUT must be filled up within a

reasonable time and within the authority given in order to be enforceable against this party who omitted things.EXCEPT for any holder in due course , to whom it will be VALID, even if the reasonable time or authority was exceeded. BUT –‘a fortiori’ – a signature on a blank paper is not a bill unless delivered+intending for to be completed as a bill by the person delivered to basicly.

3) A blank paper with a signature DELIVERED to someone TO BHE CONVERTED into a bill: qualifies as PRIMA FACIE authority, for the above rules- even to make signature as acceptor OR drawer OR indorser.

E. CHAPTER 3 /WEEK3 CAPACITY AND AUTHORITY OF PARTIES.

a) Explain the effect of a forged and unauthorized signature

1) Subject to the provisions of this act, if a signature on a bill is FORGED or PLACED THEREON WITHOUT THE AUTHORITY OF (JURISTIC OR NATURAL) PERSON who’s signature it purports to be(eg a Company or a CC), THE SIGNATURE IS WHOLLY INOPERRATIVE, no right to 1-retain bill,2- give discharge therefore ,3-enforce payment thereof against ANY PARTY THERETO can be acquired THROUGH OR UNDER that SIGNATURE, exept AGAINST the person who forged it or signed it without authority. BUT an UNATHORISED SIGNATURE CAN BE RATIFIED, but not a forged one, it cannot be ratified.

2) FOR Own interest :No person is liable as drawer or acceptor or indorser of a bill if he has not signed it AS SUCH- (the defense of NON EST FACTUM may be raised for this sort of thing, against any holder in due course etc.– provided one was NOT NEGLIGENT, eg if you signed as a witness and not as a drawer etc.)a) If signed in a trade or assumed name he is liable as if he signed it in his own nameb) A signature of a name of a firm is equal to all the liable partners of the firm signing

3) FOR Own interest :Section 24: If a person signs a bill as a drawer , acceptor or indorser and adds words to his signature indicating that he signs for or on behalf of a principal, or in a representative capacity, or if he signs as drawer and the ????name of the principle appears with his signature????,(how close?) he is not personally liable thereon, provided if he had no authority he is liable himself personally (the abbreviation p.p. which stands for “per procurationem” or the words ‘For’ are sufficient to showit is for a company, not person signing) SO : If you sign on behalf of a company or cc you are personally liable unless the “ full name incl. c.c /Pty(ltd)etc AND registration number” APPEARS WITH HIS SIGNATURE or you say “For ….name” after you sign, where name can be the shortened form of the name only if the full name also appears on the cheque/bill/etc., as per company&cc acts – if you use the trade name you are liable-you must state the full name as well unless signature appears “WITH” full name somehow. See companies act 1973 section 50 AND c.c. act sect.23. , - ???????BUT you will be liable only as an illiquid doc. If you say For ‘tradename without full name&registration no.) on face , not as a negotiable instrument, because “For ‘tradename’” would be sufficient for the Bills of Exchange act, but not the c.c and companies act where you must also have reg. no. and FULL name(incl Pty(Ltd) etc etc ). Under companies act you can be sued as an illiquid document even if you cannot be sued as a liquid document under the Bills of Exchange act because you wrote “For tradename” BASICLY!!!!!!!.??????

4) FOR Own interest: if you authorize someone to sign for you, it is seen as the same as if you signed yourself : even if a computer prints the signature, or another person signs eg ; in large company etc.


b) Explain the effect of principles governing payment of uncrossed cheques, with regard to the case of a forged drawers signature

If a cheque is uncrossed , it means it could be indorsed and transferred, but no person to whom it is transferred , nor the original holder, will get any right to 1-RETAIN BILL, 2-GIVE DISCHARGE THEREFOR,3-ENFORCE PAYMENT thereof against ANY PARTY THERETO THROUGH OR UNDER a forged SIGNATURE, exept AGAINST the person who forged it IF IT WAS A FORGED DRAWERS SIGNATURE, because any further indorsement would be useless because the original holder to whom it was issued cannot pass on any rights to you,EXCEPT any holder in due course will be able to claim against the indorser personally , but not against the person whose name was forged.

c) Explain the principles governing payment of uncrossed cheques , with regard to the case of a forged endorsement.

If a cheque is uncrossed , it means it could be indorsed and transferred, but no person to whom it is transferred , by means of a forged indorsement gets any rights to 1-RETAIN BILL, 2-GIVE DISCHARGE THEREFOR,3-ENFORCE PAYMENT thereof against ANY PARTY THERETO THROUGH OR UNDER a forged SIGNATURE, exept AGAINST the person who forged it personally, and this includes any persons to whom the cheque was indorsed after the forged indorsement.they only have rights against the person that actually indorsed and negotiated it to them, not against any other parties to the cheque. BUT all holders and holders in due course from before the forged signature do still have all the normal rights and don’t loose any of their rights, like those after the forged signature.

E. Consideration for a Bill:

A) DEFINE THE WORD VALUE

1) A valuable consideration , a benefit received or promised as a quid pro quo.

B) DEFINE THE HOLDER IN DUE COURSE

HOLDER IN DUE COURSE.:a. A holder in due course is a holder who has taken a bill, under the following circumstances:

i. Complete and regular on the face of it ii. Overdue :Must become the holder before it was overdue

iii. Dishonoured : If previously dishonoured he must not have notice thereof (must not know this)iv. Good Faith :Must have taken the bill in good faithv. ‘and for Value’ :Must have taken the bill in return for value, or for quid pro quo

vi. Defect Title :Must have had no notice of any defect in title of person who negotiated the bill to him. AT THE TIME WHEN IT WAS NEGOTIATED TO HIM

vii. Negotiated: it must be negotiated to the new holder.: by the indorsement of old holder completed by delivery.viii. In particular: his title is defective if (he is not a holder) if he obtained the bill or acceptance thereof by fraud or

other unlawful means, or for an illegal consideration, or in breach of faith.ix. Rights: if holder not knew of any illegal/breach of faith etc/ he gets all the rights of previous holder in due course ,

as regards the acceptor and all parties to the bill prior to the bill prior to that holder.

C) DEFINE AN ACCOMMODATION PARTY TO A BILL

A accommodation party to a bill is a person who has signed a bill as drawer, acceptor or indorser, without receiving value therefor, but for the purpose of lending his name to some other person. Where the accommodating party is the drawer, the purpose is that it is to be used by the payee to raise finance consequent upon the cheque being discounted./ get credit. The accommodating party is then not liable to the payee/accommodated party, because he does not receive any value in return or quid pro quo. The former is only liable to the holder who financed the latter. /gave credit to.B

D) DISCUSS THE REQUIREMENTS FOR A HOLDER IN DUE COURSE


HOLDER IN DUE COURSE.:a. A holder in due course is a holder who has taken a bill, under the following circumstances:

i. Complete and regular on the face of it ii. Negotiated: it must be negotiated to the new holder.: by the indorsement of old holder completed by delivery.

iii. ‘and for Value’ :Must have taken the bill in return for value, or for quid pro quoiv. Overdue :Must become the holder before it was overduev. Dishonoured : If previously dishonoured he must not have notice thereof (must not know this)vi. Good Faith :Must have taken the bill in good faith

vii. Defect Title :Must have had no notice of any defect in title of person who negotiated the bill to him. AT THE TIME WHEN IT WAS NEGOTIATED TO HIM

viii. In particular: his title is defective if (he is not a holder) if he obtained the bill or acceptance thereof by fraud or other unlawful means, or for an illegal consideration, or in breach of faith.

ix. Rights: if holder not knew of any illegal/breach of faith etc/ he gets all the rights of previous holder in due course , as regards the acceptor and all parties to the bill prior to the bill prior to that holder.

E) DISCUSS THE PRESUMPTION AS TO VALUE AND GOOD FAITH.

1) The presumption as to value means that Every party whose signature appears on a bill is PRIMA FACIE deemed to have become a party thereto for value

2) And …of good faith means that Every holder of a bill is PRIMA FACIE deemed to be a holder in due course, except , in the case of where fraud or illegality is involved with the bill, a holder must first prove that he gave value in good faith subsequent to the illegality before he can be deemed to be a holder in due course.

F. Chapter 5 Week 5 Negotiation of a Bill. Sec 29-36

A) EXPLAIN HOW A BILL IS NEGOTIATED

1) A bill is negotiated if it is transferred from one person to another in such a way as to constitute the transferee the holder of the bill.2) A bill payable to bearer is negotiated by delivery3) A bill payable to order is negotiated by the indorsement of the holder completed by delivery.4) If the holder of a bill payable to his order transfers it without indorsing it the transfer gives the transferee(NOT THE HOLDER !) the

same “TITLE “ as the person who transferred it had in the bill, as well as the right to have it indorsed by the transferor.(until then he is a cessionary)

5) Anybody who is under obligation to indorse a bill because he transferred it to another person is allowed to do it according to such terms as to have a negative personal liability.

B) EXPLAIN THE REQUIREMENTS OF A VALID INDORSEMENT

1) An indorsement,, in order to effect a negotiation of a bill, must :a) Be written on the bill itself , where an indorsement written on the allonge of a bill or a copy of a bill issued or negotiated in a

country where copies are recognized shall be deemed to be written on the bill itself.b) Be signed by the indorserc) Be an indorsement of the entire bill.d) A simple signature of indorser without additional words is sufficient to..e) A PARTIAL indorsement , to 2 or more indorsees or which transfers only part of a bill is does not effect a negotiation of the bill.f) If a bill is payable to 2 or more payees or indorsees WHO ARE NOT PARTNERS, then all of them must indorse it in order to effect

a negotiation, UNLESS 1 OF THEM HAS THE POWER TO INDORSE FOR THE OTHERS. g) If there are 2 or more indorsements on a BILL they are deemed to have been made IN THE ORDER that they APPEAR on the

bill, UNLESS THE CONTRARY IS PROVED.h) An indorsement can be in:

i) BLANK indorsementii) SPECIAL indorsementiii) RESTRICTIVE indorsement

(1) CONDITIONAL indorsement(2) PARTIAL indorsement


C) DISTINGUISH BETWEEN THE DIFFERENT KINDS OF INDORSEMENTSa. An indorsement can be in:

i. BLANK indorsement : an indorsement in blank specifies no indorsee and a bill so indorsed becomes payable to bearer.

1. If a bill has been indorsed in blank, any holder may convert the indorsemnt into a special indorsement by writing above the indorsers signature a direction to pay to himself or his order or to some other person or their order.

ii. SPECIAL indorsement : A special indorsement specifies the person to whom , or to whose order, the bill is to be payable.

iii. RESTRICTIVE indorsement : 1. An indorsement is restrictive if it :

a. prevents the further negotiation of the bill, b. or if it expresses that it is a mere authority to deal with the bill as thereby directed eg if it

states: Pay X Only | Pay X for the account of Y | Pay X or order for collection.( for collection AND ‘for the account of ‘ basicly means it is the final giving in to the bank or similar who is now paying the thing out for the last time –usually the bank- and the person who it was now indorsed to can only go and collect the money for the indorser, and then give it to him or put it in his account , and not keep it.He can even further allow this guy to re-indorse the thing again, to someone else to go and collect it for him, but all only in order to go and fetch it for him basicly. - must check case law and more books- a bit of a complication)

2. A restrictive indorsement gives the indorsee the right to receive payment of the bill and to sue any party thereto that his indorser could have sued BUT GIVES HIM NO RIGHT TO TRANSFER HIS RIGHTS AS INDORSEE UNLESS IT EXPRESSLY AUTHORISES HIM TO DO SO.

3. If a restrictive indorsement authorizes further transfer transfer, all subsequent indorsees take the bill with the same rights, and subject to the same liabilities, as the first indorsee under the restrictive indorsement.

iv. CONDITIONAL indorsement : If a bill purports to be indorsed conditionally the payer may disregard the condition , and any payment then to the indorsee is valid, whether the condition is fulfilled or not.

v. A PARTIAL indorsement , to 2 or more indorsees or which transfers only part of a bill does NOT effect a negotiation of the bill.

D) DISCUSS THE REGULARITY OF INDORSEMENTS WITH REFERRAL TO CASE LAW

1) CASE LAW : Silcan Estate&Finance co v Astra Café.a) The court referred to the following authorities in answer to the question : when is an indorsement irregular:

i) caveat emptor : Arab bank vs Ross : If the bill itself conveys a warning : caveat emptor (beware the buyer) from Arab bank vs Ross

ii) on the instrument OR any omission /suspicious/irregularities: Another court said; if there is anything on the instrument OR any omission , which would make the person receiving the bill suspicious, then one must say he did think that it might have irregularities, it is not as if he did not think there could be irregularities.

iii) not the actual indorsement / is irregular :Another court said : if it seems that any indorsement on the bill is not the actual indorsement of that specific payee then it IS IRREGULAR

iv) Another said about the same as the last above.

E) SHORTLY DISCUSS THE RIGHTS AND POWERS OF THE HOLDER

1) The rights and powers of the holder are as follows:a) SUE : he may sue on the bill in his own name.b) He may present the bill for paymentc) He may make certain amendments to the bill if anything was left out.d) He may add certain things to a bill eg crossings or write ‘non transferrable’ on the bill.e) He may request a new one if the old one is lostf) He may protest a bill to obtain a better title to it.g) EQUITIES : if he is a holder in due course he holds the bill free from

i) TITLE DEFECT any defect in the title of prior parties,ii) PERSONAL DEFENCES as well as from mere personal defences available to prior parties amoungst themselvesiii) ENFORCE PAYMENT May enforce payment against all parties liable on the bill

h) DEFECTIVE TITLE : If the title is defective ANDi) HE NEGOTIATES the bill to a holder in due course, that holder gets a good and complete title to the bill.ii) OBTAINS PAYMENT IN DUE COURSE that person who paid gets a valid DISCHARGE of the bill.


i) ABSOLUTE DEFENCES: are available against any holder, even a holder is due course who is supposed to be free of equity, but a RELATIVE DEFENCE : is a defence against which a holder in due course is safeguarded, namely (a) mere personal defences and 9b)defences that arise from a defective title (from before him of course)

Week 6 GENERAL DUTIES OF THE HOLDER 37-50

MENTION INSTANCES IN WHICH PRESENTMENT FOR ACCEPTANCE IS NECESSARY IN ORDER TO RENDER A PARTY LIABLE ON THE INSTRUMENT SECT 37 (ONLY FOR BILLS, NOT CHEQUES OR NOTES)

1) When a bill is payable after sight, (presentment for acceptance is necessary in order to fix the maturity of such a bill)2) If expressly stipulates that it shall be presented for acceptance3) If A BILL is drawn payable elsewhere than at the place of residence or business of the drawee.

IN NO OTHER CASE IS PRESENTMENT FOR ACCEPTANCE NECESSARY IN ORDER TO RENDER LIABLE ANY PARTY TO A BILL.PAYABLE AFTER SIGHT: means the bill must first be presented for acceptance before the maturity of the instrumentPAYABLE ON SIGHT: : means it is payable on demand,

TIME SECT 37 FOR 1 AND SECT 38 FOR 2(ONLY FOR BILLS, NOT CHEQUES OR NOTES)

1-IF HOLDER OF BILL DRAWN PAYABLE ONLY FOR :ELSEWHERE place busin/residence of drawee- if holder has no time, with reasonable diligence, to present for acceptance before present for payment, delay caused by presenting for acceptance will be excused when he gets there to present for payment.(only for this specific case type-residence/business , and this 1 number actually forms part of sect 37 before this, but not fit in question for syllabus in paragraph before)2-a bill payable after sight that was negotiated must be presented or re-negotiated in a reasonable time or all drawers and indorsers prior to that holder are discharged–(“time” means with regard to facts of case,trade usage similar bills,nature of bill.)

SHORTLY DISCUSS RULES AS TO PRESENTMENT FOR ACCEPTANCE AND EXCUSES FOR NON-PRESENTMENT. SECT 39(ONLY FOR BILLS, NOT CHEQUES OR NOTES)

1) A bill is seen as having been PROPERLY PRESENTED FOR ACCEPTANCE if the following rules are obeyed:a) 1-By or on 2-behalf of holder, at a 3-reasonable hour on a 4-business day, and before the bill is 5-overdue, to the 6-drawee or a

person 7-authorized to accept/refuse on his behalf.b) If bill is addressed to 2 or more drawees, who are 1-not partners, presentment must be made to 2-them all,unless one has

3- authority to accept for all, (in which case presentment may be made to him only).c) Drawee dead , presentment may be made to executord) Drawee insolvent, presentment to him or his trustee.e) Presentment by post, if in due course, is sufficient.

2) Presentment in accordance with sub-section 1 is excused, and a bill may be treated as DISHONOURED BY “NON-ACCEPTANCE”, ( this means if the holder does not present for acceptance in time or at all as per above 5 rules , he could be excused any way and the bill actually seen in his favour as ‘dishonoured by non-acceptance’…if perhaps any of the following reasons) if the: a) Drawee is 1-dead or 2-insolvent 3-fictitious or non-existing person 4-person not having capacity to contract.b) If after ‘EXERCISE OF REASONABLE DILIGENCE”, such presentment “CANNOT BE EFFECTED.”c) If when irregular presentment is made, acceptance IS REFUSED ON SOME OTHER GROUND.

3) The fact that the holder of the bill has reason to believe that the bill, on presentment, will be dishonoured, does NOT excuse presentment.

-OWN NOTES-IF A BILL IS NOT ACCEPTED IN CUSTOMARY TIME AFTER IT HAS BEEN PRESENTED FOR ACCEPTANCE BY THE HOLDER, THEN IT MUST BE TREATED AS ‘DISHONOURED BY NON-ACCEPTANCE’ OR ELSE HOLDER LOOSES HIS RIGHT OF RECOURSE AGAINST DRAWER AND INDORSERS SECT 40 ( ONLY FOR BILLS, NOT CHEQUES OR NOTES)

-OWN NOTES-A BILL IS DISHONOURED BY NON-ACCEPTANCE IF IT IS PRESENTED FOR ACCEPTACE AND THIS ACCEPTANCE IS REFUSED OR CANNOT BE OBTAINED OR PRESENTMENT FOR ACCEPTANCE IS EXCUSED , OR IF THE BILL IS SIMPLY NOT


ACCEPTED.THEN THE CONSEQUENCES ARE A RIGHT OF RECOURSE AGINST THE DRAWER&INDORSERS AND NO PRESENTMENT FOR PAYMENT IS NECESSARY. SECT 41 ( ONLY FOR BILLS, NOT CHEQUES OR NOTES)

SEC 42 EXPLAIN THE DUTIES AS TO AND CONSEQUENCES OF QUALIFIED ACCEPTANCE. SECT 42 (ONLY FOR BILLS, NOT CHEQUES OR NOTES)

1) The holder may refuse a “qualified acceptance”(means a condition is given, so first do this or that etc) and if he cannot get an unqualified acceptance then may treat the bill as dishonoured by non-acceptance..

2) If a qualified acceptance is TAKEN, and the DRAWER or indorser did not express or implied authorize the HOLDER to, he is discharged from his liability on the bill. –BUT THIS DOES NOT APPLY TO A PARTIAL ACCEPTANCE WHEREOF DUE NOTICE (to the drawer/indorsee) HAS BEEN GIVEN.

3) If the drawer or indorser of a bill RECEIVES NOTICE OF A QUALIFIED acceptance , and does not within a reasonable time express his dissent to the holder, he shall be deemed to have assented thereto.\

SECT 43 RULES AS TO PRESENTMENT FOR PAYMENT SECT 43 (FOR CHEQUES AND BILLS AND PROMISSORY NOTES)

1) –subject to the provisions of this act- A bill must be duly presented for payment or ELSE the drawer & indorsers are discharged.2) A bill is duly presented for payment as per following rules: AND IF IT IS NOT PRESENTED exactly like LIKE THIS THEN THE

DRAWER & INDORSERS WILL BE DISCHARGED(1) If it is not payable on demand, presntment must be made on the day it falls due.(2) If it is payable on demand , presentment must be made within a REASONABLE TIME as defined below, after issue of

indorsement.(3) Made by the holder or person authorized to receive payment on his behalf,at a reasonable hour on a business day,at the

PROPER PLACE as defined below,either to the payer as designatdby the bill or person authorized to pay/refuse on his behalf, if with the exercise of reasonable diligence such person can be found there.

(4) If bill is drawn upon and or accepted by 2 or more persons who are not partners, and no place of payment in specified, presentment must be made to them all.

(5) If drawee or acceptor of the bill is dead, and no place of payment is specified, presentment must be made to his executor, if there is one, and with the exercise of reasonable diligence, he can be found.

b) TIME: 1-nature of bill 2-usage of trade for similar bills 3-facts of that casec) PROPER PLACE:

i) When a place of payment is specified in the bill the bill is presented thereii) When no place of payment is specified , but the address OF THE DRAWEE OR ACCEPTOR is given, and the bill is presented

thereiii) When no place of payment, AND no address of drawee or Acceptor is given, and the bill is presented at the drawee or

acceptor’s place of business if known , and if not, at ordinary place of residenceiv) In any other case, if the bill is presented wherever the drawee or acceptor can be found, OR at his last known place of

business or residenced) A presentment by post, IF IN DUE COURSE, is sufficient.

-ONE NOTES-PRESENTMENT FOR PAYMENT BY BANK OF A CHEQUE–

basicly by a 1-collecting bank on behalf of holder: per rules/place of bank clearing house of which both drawee bank and collecting bank are members, or at a place of payment designated by drawee bank, or by data transmitted between them if the data shows sum,cheque no. if any,account holders drawee bank. ….+ if presented as any above drawee bank is not relieved of any liabilities it would have been subject to if the cheque was presented direcly to that bank itself by holder.

-OWN NOTES-SECT 44 WHEN PRESENTMENT FOR PAYMENT MAY BE DELAYED OR DISPENSED WITH – NOT IN SYLLABUS- BASICLY 1-IF BEYONG CONTROL BUT NO NEGLIGENCE/MISCONDUCT ETC.-2-WITH EXERCISE SUFFICIENT DILIGENCE PRESENTMENT CANNOT BE EFFECTED 3-DRAWEE NOT BOUND TO SOMEHOW PAY WAT DRAWER SAYS HE MUST &HOLDER THINKS HE WONT


PAY-3-DRAWEE OR ACCEPTOR INSOLVENT-,4-INDORSER NO REASON EXPECT PAY OR SOMETHING WEIRD(SEE BOOK)- 5-EXPRESS OR IMPLIED WAIVER ON THE BILL THAT IT MUST BE PRESENTED FOR PAYMENT , EITHER NOT NECESSARY AT A SPECIFIC TIME OR NOT HAVE TO IN A CERTAIN WAY.

SECT 45- WHEN BILL DISHONOURED BY NON-PAYMENT AND CONSEQUENCES- RE-READ NO TIME –BASICLY IF NOT PAID OR EXCUSED =RIGHT OF RECOURCE AGAINST DRAWERS & INDORSERS.

SECT 46 EXPLAIN NOTICE OF DISHONOUR AND THE EFFECT OF FAILURE TO GIVE SUCH NOTICE (FOR CHEQUES AND BILLS AND PROMISSORY NOTES)

1) If by non acceptance or non-payment, notice must be given to drawer AND each indorser provided:a) For non-acceptance: if notice not given : rights of next holder in due course not affected.b) For non-acceptance : if notice was given :not need give notice of non-payment unless it WAS accepted in the meantime.

2) Any indorser or drawer to whom notice has NOT been given is discharged.3) Notice does NOT have to be given to acceptors of a bill OR makers of promissory notes OR signers of aval

SECT 47 EXPLAIN RULES OF NOTICE OF DISHONOUR SECT 47 (FOR CHEQUES AND BILLS AND PROMISSORY NOTES)

1) Must be given in accordance with following rules-for cheques bills notes(1) By or on behalf of 1-holder OR by or on behalf of 2-INDORSER who at time of giving it IS LIABLE HIMSELF(2) May be given by an agent , either in his own name or in name of any party entitled to give notice, whether that party is

his principle or NOT(3) In writing OR personal communication , 2-must sufficiently identify the bill 3-and say it has been dishonoured by

non-acceptance or non-payment(4) Written need NOT be signed 2- insufficient written may be supplemented by verbal.(5) Return to DRAWER OR INDORSER ,of dishonoured bill is sufficient notice(6) To person or authorized person to receive on his behalf(7) If drawer or an indorser is1- dead, must give notice to 2-executor if there 3-is one and if with exercise of 4-due

diligence he can be found.(8) Drawer/indorser insolvent – then to EITHER him or his trustee.(9) If 2 or more drawers or indorsers who are 1-not partners :notice must go to each of them UNLESS one has 2-authority

to take it for any of the others, then they all got notice , exept those who did not give such authority.(10)ONLY From actual time(not before) of dishonoured till ‘reasonable time’ over.(11)If in hands of an agent at time of dishonor- he must give notice to parties liable OR to his principle in the same

‘reasonable’ time allowed as for giving notice to the liable parties, .(to principle) pg 292 (12)Principle then has same time from when he hears to give his notice, as if agent were a normal holder .(see 5)

2) If given by or on behalf of holder : it keeps for all following holders & all prior indorsers –WHO DO HAVE ARIGHT OF RECOURSE AGAIST PARTY TO WHOM GIVEN.(so probably not for cheques where next due course knew of dishonor)

3) If NOTICE given by or on behalf of any indorser who may give NOTICE : it keeps for holder & all indorsers after party to whom it was given

4) Unless receiver WAS mislead by it, a misdescription of bill in notice does not make the notice invalid.5) TIME: UNLESS THERE ARE SPECIAL CIRCUMSTANCES , it must either be POSTED or GIVEN on the NEXT business day after

dishonor /exept if next bus.day. is Saturday, then Monday not sat. If not then it is seen as not having been given in time.( ‘special circumstances mean if by no default,negligence,misconduct, of the giver of the notice,so by circumstances beyond his control)

6) A party to bill has same time as holder to give antecedent parties notice after he gets notice from him.7) POSTED:if posted notice addressed and posted correctly, sender is deemed to have given notice even if miscarriage by post office.(this

means – in (5) it says ‘given or POSTED’ on next business day.But they say notice has only actually been given when received, exept in ‘certain special’ circumstances where it could be when it was posted – not very clear!!!)

-OWN NOTES-SECT 48: WHEN NOTICE OF DISHONOUR MAY BE DELAYED OR DISPENSED WITH- CIRCUMSTANCE S BEYOND CONTROL(NO NEGLIGENCE,MISCONDUCT ETC ALLOWED ……2 NOTICE CAN NOT BE GIVEN TO OR DOES NOT REACH PERSON ….3-BY EXPRESS OR IMPLIED WAIVER BEFORE OR AFTER TIME NOTICE WAS TO BE GIVEN….4 IF DRAWER&DRAWEE SAME


PERSON/FICTITIOUS/NO CAPACITY/…5WHERE YOU MUST&DO PRESENT TO DRAWER HIMSELF,NOT DRAWEE…6-WHERE DRAWEE OR ACCEPTOR IS NOT BOUND TO PAY(BETWEEN HIM AND DRAWER) …7IF DRAWER HAS COUNTERMANDED PAYMENT SO “STOPPED PAYMENT” …8IF INDORSER KNEW DRAWEE WAS FICTITIOUS OR DRAWEE NO CAPACITY TO CONTRACT AND INDORSER KNEW THIS WHEN HE INDORSED HE NEED RECEIVE NO NOTICE ….9-“???WHERE THE BILL WAS ACCEPTED OR MADE FOR THE ACCOMODATION OF SUCH INDORSER???”. …10 WHERE BILL IS PRESENTED TO INDORSER HIMSELF,HE NEED RECEIVE NO NOTICE

-OWN NOTES-SECT 49 – PROTEST OF A BILL – DONE BY A NOTARY –MAKES BETTER ‘PROOF’ SORT OF -VARIOUS RULES TO BE READ OVER –NO TIME TO NOTE HERE- NOT IN SYLLABUS.

CHAPTER 6 / WEEK 6 GENERAL DUTIES OF THE HOLDER

EXPLAIN THE LIABILITY OF THE DRAWEE AND ACCEPTOR

1) LIABILITY OF DRAWEE: a) A bill of itself does not operate as an assignment of funds in the hands of the drawee and available for the payment thereof, and

the drawee of a bill who does not accept as required by this act, is not liable on the instrument.2) LIABILITY OF ACCEPTOR:

a) The acceptor of a bill, by accepting it ( ONLY WHEN HE ACTUALLY DOES ACCEPT IT)i) Guarantees to pay it according to whatever type of acceptance he accepted it like.(tenor of)

b) May not deny to a holder in due course (1) the 1-existence of the drawer 2- genuineness of his 2-signature 3-his 3-capacity & 4-authority to draw the bill(2) for a bill payable to order, he may not deny the then capacity of drawer to indorse, but he may question the genuineness

or validity of his indorsement.(3) For a bill payable TO ORDER OF a 3 rd person , may not the existence of payee and his then capacity to indorse, but he

may question the genuineness or the validity of his indorsement.

LIABILITY OF DRAWER AND INDORSER :

1) THE DRAWER OF A BILL BY DRAWING IT: a) Guarantees it will be paid according to its tenor, and if dishonoured he will compensate the holder, or an INDORSER who is

compelled to pay it, AS LONG AS THE REQUISITE PROCEDURES ON DISHONOUR ARE DULY TAKEN.b) Precluded from denying to a holder in due course the existence of the payee and his then capacity to endorse.

2) THE INDORSER OF A BILL BY INDORSING IT a) Guarantees that ON PRESENTMENT it will be,ACCEPTED & Paid according to its tenor, and if dishonoured he will compensate

the holder, or a SUBSEQUENT INDORSER who is compelled to pay it, AS LONG AS THE REQUISITE PROCEDURES ON DISHONOUR ARE DULY TAKEN.

b) Is not allowed to deny to a holder in due course the regularity or genuineness of any signatures from before hime, incl. drawer and indorsers.

c) Not allowed to deny to his indorsee or a subsequent indorsee, that the bill was genuine and valid AND that he had a good title thereto.

LIABILITY OF A STRANGER SIGNING A BILL.

1) If a stranger signs a bill otherwise as a drawer, indorser,signer of an aval, or drawee certifying a cheque, he thereby incurs the liability of an indorser to a holder in due course.

LIABILITY OF THE SIGNER OF AN AVAL

1) The liabilities of the parties to a bill or note may be secured by aval.


2) A person signs a bill or note as an aval where he signs the note and by words such as “as aval” or “as surety” or “as guarantor” expressly indicates he is surety. ALSO if he just signs it without adding anything , BEFORE the payee indorses it, it is also sufficient to indicate that he is signing as an aval.(if he says:”As surety and co-principle” then he also waives his rights of excussion & division as a surety?)

3) He may specify the party for whom he is giving his aval , if he does not specify then it is deemed it is for the Drawer or Maker.But if a bill has been accepted then it is deemed he gave his signature for the acceptor, whether he signed before or after the acceptance.

4) He is JOINTLY and SEVERALLY liable, with and as surety, for the party for whom he has given his aval, or for whom he is deemed to have given his aval.

5) If he pays the bill, he aquires the rights arising out of the bill, against the person for whom he/deemed signed AND all parties liable to that person(so in effect the holder who gets paid must indorse it and hand it to the aval, so it is his now-as per book)

SEC 55 MENTION DAMAGES RECOVERABLE FROM PARTIES TO A DISHONOURED BILL.

1) IF A BILL IS DISHONOURED, the holder may recover from any party liable on the bill,and the drawer, if he has been compelled to pay, may recover from the acceptor, and an indorser who has been compelled to pay, may recover from acceptor or drawer or prior indorser the following : AS DAMAGES WHICH SHALL BE DEEMED TO BE LIQUIDATED:a) The amount of the billb) Interest thereon from the time of presentment for payment if the bill is payable on demand, or from the maturity of the bill in any

other case.

SEC EXPLAIN LIABILITY OF TRANSFEROR BY DELIVERY.

1) If a holder of a bill payable to bearer negotiates such bill by delivery without indorsing it he is called transferor by delivery. 2) A transferor by delivery is not liable on the instrument in question.3) He warrants to his immediate transferee, if latter is a HOLDER FOR VALUE, that:

1. Bill is what it purports to be2. He has a right to transfer it 3. At time of transfer , he is not aware of any fact which renders it valueless.

Chapter 8/9 week 8/9 discharge of bill Sec 57-62

EXPLAIN THE METHODS SPECIFIED BY THE ACT WHEREBY AN INSTRUMENT IS DISCHARGED.

A bill is “discharged” when : “all rights of action on the instrument are extinguished.” It puts an end to all the obligations of all the parties to it.”It then ceases to be a negotiable instrument”

1) DISCHARGE BY PAYMENT IN DUE COURSE SECT 57 a) If payment in due course is made by or on behalf of the drawee or acceptor, then a bill is discharged, or if part of is paid in same

way then bill is discharged proportionately ,noted by indorsement on the bill.(probably name who paid,amount paid, date, signed by payee/holder.

b) A bill is not discharged if it is paid by the DRAWER OR AN INDORSER, subject to the following (3-5) provisions though.c) If a bill payable to a third party or the order of the latter , is paid by the DRAWER, the drawer may enforce payment thereof

against the ACCEPTOR, but may not re-issue the bill.d) If a Bill is paid by an INDORSER, or if a bill payable To Drawers Order is paid by the drawer, the party paying it is remitted to his

former rights as regards THE ACCEPTOR AND ANTECEDENT PARTIES, and he may, if he thinks fit, strike out his own and subsequent indorsements, and may again negotiate the bill.

e) If an accommodation bill is paid in due course by the party accommodated, the bill is discharged.2) BANK PAYING DEMAND DRAFT WHERE INDORSEMENT IS FORGED.SECT 58

a) Unless an indorsement is of a customer of a bank AT that very branch of the bank, for the bank who pays the indorsed cheque it is not incumbent on the bank to prove the various indorsements are MADE BY OR UNDER THE AUTHORITY OF THE PERSON WHO’S IT PURPORTS TO BE.

3) DISCHARGE BY ACCEPTOR BECOMING HOLDER. (MERGER) SECT 59 a) IF THE ACCEPTOR of a bill is or becomes the holder of it at or after its MATURITY , “IN HIS OWN RIGHT” , the bill is discharged.

4) DISCHARGE BY WAIVER AND RENUNCIATION a) Subject to the provision in (4) below, (due course no-notice) if the holder of a bill ABSOLUTELY and UNCONDITIONALLY

renounces his rights against the ACCEPTOR, the bill is discharged, but it must be in the way contemplated in (2) below


b) The renouncination must be in WRITING on the bill, unless the bill is DELIVERED to the acceptor.c) In the way contemplated in section 1 + 2 and subject to section 4, the rights may be waived AT OR BEFORE OR AFTER

MATURITY.d) A HOLDER IN DUE COURSE who had NO NOTICE of the waiver, shall not be affected in any way by it or any of the above.

5) DISCHARGE BY CANCELLATION of the BILL and / or DISCHARGE OF PARTY BY CANCELLATION OF HIS SIGNATURE. a) If a bill is intentionally cancelled by the holder or his agent , and it is apparent on the bill that is was cancelled like this, then the

bill is discharged.b) ANY PARTY liable on a bill may be discharged by the holder or his agent, by cancelling the signature of that party on the bill.(incl.

the drawer)i) If a signature is cancelled like this then ANY INDORSER who would have had a right of recourse against the discharged party is

also discharged.c) A cancellation made unintentionally , or by mistake, or without the authority of the holder, IS INOPERATIVE, but the burden of

proof lies on the person who says is was NOT cancelled.6) PRESCRIPTION

a) AS PER PRESCRIPTION ACT: for a bill of exchange or other negotiable instrument it is 6 years.b)

SECT ? DISTINGUISH BETWEEN DISCHARGE OF THE INSTRUMENT AND THE DISCHARGE OF ONE OR MORE OF THE PARTIES.

1) Pg 319top paragraph : The indorsers of a bill of exchange or note may be discharged by reason of the holders failure to give notice of dishonor, but the primary debtor – the ACCEPTOR OR MAKER-WILL REMAIN LIABLE and so the instrument is not discharged.

2) Payment to a holder of a bill by the signatory to an aval DOES NOT DISCHARGE THE INSTRUMENT , it only discharges 1 party- the signatory to the aval- not the drawer or maker nor any of the indorsers nor any other signatories to the aval – they are all now liable to the aval who paid.

3) Payment by a drawer or indorser will not discharge the instrument, will discharge the drawer or indorser BUT NOT the acceptor or antecedent parties who are remitted to their former duties as regards the party who paid it.

4) If an indorser pays a a bill , then the instrument is not discharged but he is discharged , and all the other parties previously liable on the bill are now liable to him in a specific way.

5) If any signature of an indorser is cancelled by the holder or his agent, then that party and any other indorser who had recourse against that party, is discharged, BUT the instrument is not discharged.

6) An instrument is discharged if full payment is made by the drawee or acceptor.

SHORTLY DISCUSS THE HOLDERS RIGHTS IF BILL OR NOTE IS LOST OR DESTROYED .

1) If a bill or note is lost or destroyed BEFORE IT IS OVERDUE, then the last holder before it was lost(he does not qualify as a holder anymore if bill is gone!) has a right to request of the maker or drawer to make him another bill or note, of the same tenor.BUT HE MUST GIVE ADEQUATE SECURITY TO THE DRAWER OR MAKER who must replace it , IF REQUIRED, INDEMNIFYING HIM AGAINST ALL PERSONS WHATEVER , , in case the original bill is found.

2) IF the drawer or maker refuses to give another one he may be compelled to do so.

SHORTLY DISCUSS THE RULES AS TO A BILL IN A SET WITH REFERENCE TO SECT 69.

1) Rules:(1) Each part of the set- being NUMBERED and containing a REFERENCE to the other parts , all of the parts together

constitutes one bill.(2) If a holder of set indorses 2 or more parts of the set, then he is liable on each part as if the parts were separate bills.And if

the same bills are re-negotiated again then every indorser after him is liable on the bill he indorsed as if it were a separate bill.

(3) If 2 or more parts of a bill are negotiated to different holders in due course, then the holder in due course who received his first is seen as the true owner , as between holders. BUT nothing in this section will affect the rights of someone who accepts or pays the first part presented to him.

(4) 4 a + b(a) The acceptance of a bill in a set must be WRITTEN on any part of it, but only on 1 part of it.(b) If a drawee accepts 2 or more parts of a set and those parts get into the hands of holders in due course, then he is

liable on each separate part as if it were a separate bill.(5) If an acceptor of a bill in a set pays it but does not require that it is handed over to him, and if that same bill lands in the

hands of another holder in due course, then the acceptor is also liable to the latter holder in due course.(6) Subject to the provisions of 2-3-4-5 , if any bill in a set is paid, or discharged for another reason, then the whole bill is

discharged.


LIABILITY OF A DRAWEE WHO CERTIFIES A CHEQUE

-a drawee(bank) can certify a cheque (guarantee a cheque) then he is liable to pay it no matter what

THE DUTY TO RECONCILE BANK STATEMENT AND TAKE REASONABLE CARE WITH BLANK CHEQUE FORMS.

Any person or firm who is required by law to have an auditor or have an accounting officer, shall exercise reasonable care in the custody of blank cheque forms and in reconciliation of bank statements.

REVOCATION OF A BANKS AUTHORITY

1. The duty &authority to pay a cheque is terminated by receipt of notice of the following if enough time was given to drawee to stop payment and the cheque was adequately identified:1.1. Countermand payment1.2. Notice of death (of drawer I think)1.3. Notice of prodigal,sequestrated,judicial management – of drawer I think

CROSSING A CHEQUE: AS ‘NOT NEGOTIABLE’ OR ‘NOT TRANSFERABLE’ ETC.

1. ANY CHEQUE WICH IS CROSSED GENEALLY OR SPECIALLY AS ‘NON TRANSFERABLE’ OR ‘NON-NEGORTIABLE’ OR SPECIALLY TO ANOTHER BANK, IF THE BANK PAYS IT OUT –EVEN TO THE WRONG PERSON OR A THIEF WHO STOLE IT OR DEFRAUDED THE SITUATION – THEN THE DRAWER IS DEEMED TO HAVE PAID HIS DEBT TO THE PAYEE NAMED ON THE CHEQUE ANYWAY- SO HE IS SEEN TO HAVE PAID THE CHEQUE EVEN IF IT WAS STOLEN ETC., AS LONG AS IT WAS ‘CROSSED’.

2. But if a bank pays a cheque which is crossed specially to the wrong bank or to a person and not a bank, it is liable to the drawer.3. ANY CHEQUE CROSSED GENERALLY MAY ONLY BE PAID BY A BANK TO A BANK- not to a person over the counter(i think to bank

then to account of person, so if presented to a drawee bank it must pay itself first.4. ANY CHEQUE WHICH IS UNCROSSED MAY BE CROSSED generally or specially BY THE HOLDER, or if already already crossed

generally it may have the words ‘not negotiable’ added to it.A specially crossed cheque can be again crossed specially to a collecting bank.

5. It is not lawful to obliterate any crossings on a cheque.6. Any cheque which is crossed specially to more than 1 bank where one is not the collecting bank for the other , must REFUSE to

pay the cheque.7.8. IF IT SAYS “NOT TRANSFERABLE’ OR “NON-TRANSFERABLE’ BOLDLY ACROSS THE FACE , ‘either with or without the word ‘only’ after

the payees name8.1. only the words are needed –it does not have to have lines drawn across. –8.2. It is not transferrable and is valid ONLY between the parties thereto - you cannot indorse it anymore or it cannot be for

bearer or order. AND 8.2.1.It is only allowed to be paid by a bank to a bank, not to another person.

8.3. It is called a ‘general crossing’8.4. The words ‘not transferrable’ may not be cancelled and any cancellation will be of no effect.8.5. If you use any other words or even an indorsement,other than exactly the above, then the bank will not be negligent if it ignores it.8.6. It is only allowed to be paid into the account of the payee,

9. IF A CHEQUE HAS 2 PARRALEL TRANSVERSE LINES, WITH OR WITHOUT “NOT NEGOTIABLE’ , that addition constitutes a crossing :9.1. Any person who takes such a cheque shall not have and not be capable of giving better title to the cheque than that which the

person from whom he took it had.9.1.1. It is only allowed to be paid by a bank to a bank, not to another person.

9.2. It is generally crossed10. IF A CHEQUE HAS THE NAME OF A BANK, WITH OR WITHOUT THE WORDS ‘NOT NEGOTIABLE’ OR ‘AND COMPANY’ or any

abbreviation thereof, that addition is a crossing and the cheque is crossed ‘to that bank’10.1.It is specially crossed10.2.May only be paid to that bank or its collecting bank or collecting agents

IF A CROSSED CHEQUE MARKED NOT NEGOTIABLE CHEQUE IS LOST OR STOLEN THE TRUE OWNER CAN CLAIM FROM ANY SUBSEQENT POSSESSORS.


1) The true owner gets 2 important rights:a) He may claim from any subsequent possessor who DID got it as a donation or in return for consideration, the lesser of his money

back or his loss- b) He may demand information as to the stolen cheque from possessors, if the don’t say then they are deemed as being liable as if they

received consideration for the cheques or got it donated to them

PROTECTION OF A BANK WHO PAYS A CROSSED CHEQUE

1) If a bank pays out a generally crossed cheque to a bank or a specially crossed one to the designated bank, WITHOUT negligence and in GOOD FAITH , the drawer now has the same rights as if it were paid to the true owner.

2)
