NEGOTIABLE INSTRUMENTS

Introduction
NI are a class of documents used in commercial and financial transactions.
They are chooses in action which comprise rights and may be transferred from one person to another. Negotiable and transferrable is two different concepts. A bill is negotiable when ; (i) ownership on the bill transfers to the recipient through deliverance OR if made by Order/or to a named person, it is negotiable by that person by endorsement and deliverance

(ii) holder of an instrument receives ownership free from other claims if he is a bona fide holder and had given value to it. His ownership is complete although the transferor of the instrument did not have ownership to it (iii) The recipient of a negotiable instrument may take any action on the instrument on his own name

Example: if A issue a cheque to B and B later endorsed it and deliver it to C as a mean to satisfy Bs debt to C, here occurs a negotiable instruments, i.e the cheque via delivery transfers. C is the holder of the instrument by giving value to it and Cs title is indefeasible. On the other hand, if C stole the cheque and then trade it with D for an amount of money, and D bona fide receives the cheque, then D acquires an indefeasible title to the cheque although C did not have a valid title to the cheque

Further if, A issue the cheque and crossed it nonnegotiable and if C stole it and trade to D, although D bona fide receive the cheque, C or D did not acquire any good title. Case London Joint Stock Bank v Simmons (1892) a broker charged his clients bonds to a bank for a loan. When he became insolvent, the bank sold the bonds to recover the debt. Bonds owners sued the bank for recovery. HOL held bank acquired the bonds bona fide for good value

Types of Negotiable Instruments : (a) Bill of Exchange form of a written promise that the person who takes the bill will be paid the amount stated in the bill when he presents it at the proper place and time.

(b) Cheques a bill of exchange drawn on a banker payable on demand (S. 73 of the Bills of Exchange Act 1949)
(c) Promissory Notes a document which contains a promise by the maker that he will a certain sum of money (S. 88(1) BEA 1949) (d) Bankers cheques (draft/cashiers) order to pay a specified sum of money, addressed by a banker to himself.

Bank Notes simply a particular form of bankers draft. Treasury Bills promissory notes issued by the government to raise short term loans. (92 days) Share warrants where shares in a public company are fully paid up, the company may issue a warrant stating that the bearer is entitled to the shares specified in the warrant.

Dividend warrants documents issued by a company directing its banker or bankers to pay to named shareholder a specified sum of money, being the shareof the declared dividend to which he is entitled.
Debentures documents given as acknowledgment of indebtedness. (long-term loan)

Bill of Exchange
S.3(1) BoE Act 1949 Non-conditional order to pay by a person to another, signed by the person who shows it, asking the person addressed, to pay on demand or such time fixed or to be fixed later, an amount of money to or on the demand of the person named or the bearer Important characteristics :

(1) Unconditional written order Hamilton vSpottiswood (1894): the words used We allow you to pay on our account on Gs demand 6,000 pounds did not contain order only permission

In Palmer v Pratt (1824) the order to pay in 30 days upon arrival of the Paragon in Calcutta was held conditional as the vessel might not reach Calcutta. In Msia, in Cooperative Exportrevenigingvecofa v Maha Syndicate [1970] HC held the words documents released against acceptance meant payment not subject to the ships arrival

(2) in writing S.3 Interpretation Act 1967, writing as including printing, lithography, typewriting, photography and other mode of representing or reproducing words in visible form. (3) addressed by one person to another (4) signed by the person giving it (5) payable on demand or at a determinable future time holder can demand for payment immediately; or at fixed period after date/sight or fixed period after the occurance of a specified event which is certain to happen, though the time of happening may be uncertain. (6) a sum certain in money (7) to the order of a specified person / bearer - A bill is payable to the order of a specified person where the name of payee is stated.

(8) supported by consideration (9) capacity to contract by bill of exchange

(10) date of bill S.3(4)(a) states that a bill is not invalid by reason that it is not dated.
- S.13(2) states that a bill is not invalid by reason only that it is ante-dated or post-dated, or that it bears date on Sunday. - Ante-dated = bearing a date prior to the true date.

- Post-dated = bearing a date after/future to the true date.

Bill
Example. RM4,000.00 22/03/2011 on demand pay John or order an amount of RM4,000.00 for value receive

Kamil To: Raju

Drawer - Kamil Drawee Raju Payee - John

LIABILITIES OF PARTIES.
S. 23 of the Bills of Exchange Act 1949 = a person is not liable on a bill unless he has signed it as drawer, acceptor or indorser. Signature:

S. 23 (a) = if a person signs under a trade name, that is assumed to be his signature.
S. 96 = a person may also sign the bill himself or by his agent. If the agent signs, he must make it clear that he signs the bill merely on behalf of someone else. If not, he will be personally liable for the bill.

Drawers liability. S. 55(1) = the drawer in drawing up a bill promises that it will be paid according to its tenor when presented and that if it is dishonoured, he will compensate any holder/indorser who has to pay on the bill, provided the necessary proceedings on dishonour are taken.

Drawees liability. S. 17 = he is only liable when he signs the bill as acceptor.

Acceptance is completed when delivery is made or when the drawee notifies the payee that he has accepted the bill or when the payee is notified of such an acceptance (S. 21(1)).
The acceptor must pay the bill according to its tenor (S. 54(a) and he may will be primarily liable for it.

But, he may challenge the genuineness of the indorsements (S. 54(b)).

Indorsers liability. An indorsement is usually effected by signing on the back of the bill. A person indorses a bill in order to transfer it. By indorsing the bill, he promises that the bill when presented will be paid in accordance to its tenor and that if it is dishonoured he will compensate the holder or any subsequent indorser who has suffered loss (S. 55)

Accomodation Partys liability.

A person who signs a bill as drawer, acceptor or an indorser without receiving value for it (lending his name to some other person)S. 28(1)
An accommodation party is liable on the bill to a holder for value( S. 28(2)).

HOLDER
A holder of a bill is the person who is in possession of the bill.

The holder may be the payee or an indorsee having possession of the bill or the bearer of a bearer bill (S. 2).
A holder can enforce a bill in his own name against a number of various persons, namely:
a) Anyone who signed it; and b) A transferor from whom he obtained the bill, irrespective of whether he had signed it.

But before he can exercise these rights he should have given value himself, in which case he will be known as a holder in due course or have obtained from a person who had given value for it, in which case he will be known as a holder for value.

HOLDER IN DUE COURSE

Defined in S. 29(1) as follows:

a) A holder who takes the bill

b) Which is complete and regular on the face on it

c) Before it becomes overdue

d) Without notice that it has been previously been dishonoured, if such was the fact
e) In good faith

f) Has given value for it; and

g) Without notice of any defect in the title of the person from whom the bill is taken.

Rights of holder in due course:

a) He can sue in his own name. b) He holds the bill free from any defects in the title of any of the prior party (S. 38(a)). c) He can enforce the bill against all parties to it (S. 38(b)). d) Anyone who takes a bill from a holder in due course irrespective of whether he himself has given value, will have the same rights as a holder in due course (S. 29(3)).

HOLDER FOR VALUE.

S. 27(2) = a holder for value is the holder of a bill for which value was given some time previously.

Rights of holder for value:

a) He can sue in his own name but his title depends on what his transferor has. He cannot obtain a better title than his transferor. b) He can enforce the bill against all parties who have signed the bill prior to the giving of such value (S. 27(2)).

CHEQUES
A cheque is a bill of exchange drawn on a banker and payable on demand (S. 73 of the BEA 1949). Types of cheques: 1. Undated cheques holder of such a cheque can fill up the correct date within a reasonable time and the cheque can be honoured (S. 20)

2. Overdue or stale cheques one which has been in circulation for an unreasonable length/ long time. 3. Ante dated and postdated cheques.

Crossings of cheques (S. 76 BEA 1949):

A cheque is crossed for protection and security purposes especially when it is delivered by post.

How to cross a cheque = by drawing two parallel lines across the face of the cheques. Sometimes, there are words written between the lines.
Types of crossings (S. 76): General crossings paying banker can only pay the amount of the cheque to a collecting banker.

1.

2. Special crossings paying banker must pay the amount of the cheque only to the collecting banker named in the crossing.

ALTERATION OF CHEQUES. s. 64(1) = If the cheque has been materially altered without the drawers authority, the drawer will be charged from liability. This means that if a bank pays on a cheque which has been materially altered, the bank cannot debit the drawers account for the amount of the cheque.

1. 2. 3. 4.

Examples of material alterations are alterations on:

Date S. 64(2) Amount S. 64(2) Name of payee S. 64(2) Any crossings S. 78

S. 78 = a crossing is a material part of the cheque.

PROTECTION OF THE PAYING BANKER.

The BEA 1949 does provide some protection for the paying banker against loss of the right to debit his customers account when he pays a cheque to the wrong person, provided certain conditions are fulfilled, they are: A banker is not liable if he pays a cheque in due course S. 59

a)

b) If the banker pays in good faith and in the ordinary course of business, a cheque drawn on him which bears a forged or unauthorized unauthorized indorsement, he is not prejudiced by the forgery S. 60. c) The paying banker is protected if he pays a cheque which is not indorsed or is irregularly indorsed in good faith and in the ordinary course of business S. 82.

d) If the paying banker pays a crossed cheque in good faith without negligence and in accordance with the crossing, he is not liable S. 80.

PROTECTION OF THE COLLECTING BANKER.

Under S. 85, where a banker, in good faith and without negligence, receives payment of a cheque for a customer with no title or a defective title, he is not liable to the true owner provided some elements are proven: That the banker acted for a customer.

1.

2. That the banker acted in good faith. 3. That the banker acted without negligence.

TERMINATION OF BANKERS AUTHORITY TO PAY. 1. 2. 3. 4. 5. 6. The bankers authority to pay may be terminated in the following ways: By counterman of payment, i.e. where the customer instructs the bank to stop payment on a cheque drawn S. 75(a). By notice of the customers death S. 75(b). By notice of the customer having become insane. By service of a garnishee order or other court order attaching or dealing with the customers monies in the hands of the banker. Where there is a defect in the presenters title. Knowledge that the customer has committed an act of bankruptcy or that a bankruptcy petition has been presented against him.

7. Knowledge that the customer, in drawing the cheque, is intending to commit a breach of trust where the funds affected are trust funds.
8. When the customer assigns the credit balance of his account to another person. 9. When the customer has insufficient funds to cover the amount of the cheque.

10. On a receipt of a notice from the customer closing his account.