Week 6 Flashcards
(22 cards)
The Law Governing Bills of Exchange
Common law countries (England):
- Bills of Exchange Act, BEA, 1882
Europe:
- Geneva Conventions on the Unification of the Law Relating to Bills of Exchange, ULB, 1930.
Bill of exchange (B/E); A written, dated, and signed three-party instrument that contains:
an unconditional order by a drawer that directs
a drawee to pay a definite sum of money to
a payee
on demand or at a specified future date.
It allows the drawer to direct the drawee to pay money to himself, to his agent or to the third party.
Promissory note (PN)
A written, dated, and signed two-party instrument containing an unconditional promise by a maker to pay a definite sum of money to a payee on demand or at a specified future date.
The only difference between a promissory note and a bill of exchange is that the maker of a note promises to personally pay the payee rather than ordering a third party to do so.
Bill of Exchange
Drawer
Drawee
Payee
Drawer
The ISSUER of a bill of exchange
Drawee
The person ORDERED TO PAY a bill of exchange
Payee
The person TO WHOM a bill or note is TO BE PAID
Promissory Note
Maker: The party who promises to pay
Payee: The party who is to be paid
Negotiable instrument:
can be freely transferred to another person (by delivery).
Transfer rights (title): (the law guarantees) the full transferability of the right to receive payment
Transferability (negotiability) requirements
Bill of exchange must:
state an unconditional promise or order to pay,
state a definite sum of money
be payable on demand or at a definite time
be signed by the maker (promissory note) or drawer (bill of exchange).
Bills and notes can be/are negotiable
so long as the form and content of the instruments are proper and contains a promise by the maker or drawer to make payment
To meet the promissory requirement, a bill or note must do the following
State an unconditional promise or order to pay
State a definite sum of money or a monetary unit of account
Be payable on demand or at a definite time
Be signed by the maker or drawer
- Does not require that a note contain words promissory note
ULB holder
A person who acquires an instrument by negotiation
Requires that a note contain words promissory note
Bills and notes can be non-negotiable
If there is any limitation on rights (full transferability of the right to receive payment), an instrument is said to be non-negotiable.
- I.O.U only acknowledges an obligation of indebtedness. This does not contain an affirmative obligation to pay. It is not, therefor a negotiable instrument
- The promise or order to pay made in a bill or note cannot be conditioned upon the performance of some other obligation.
Negotiation (ULB)
transfer of a bill or a note the recipient becomes a HOLDER!
Differences between assignee and a holder?
An assignee acquires only the rights of the assignor, while
A holder can acquire more rights from the transferor than the transferor possessed
=> these acquired rights depend on the manner in which instrument was negotiated and the governing law
Negotiation (BEA - Common law)
Common law HOLDER
A person who acquires an instrument by negotiations
Common law HOLDER IN DUE COURSE
A holder who acquires a negotiable instrument for value, in a good faith and without notice that:
It is overdue,
Has been dishonored
That person who has to pay it has a valid excuse for not doing so.
The BEA, Section 64 reads:
the bill is avoided: where a bill or acceptance is materially altered without the assent of all parties liable on the bill, [except as against a party who has himself made, authorized, or assented to the alteration, and subsequent endorsers].
- Where the alteration is not apparent ➡ the bill is in the hands of a holder in due course (HDC).
Holder in due course (but not holder) may avail himself of the bill as if it had not been altered and may enforce payment of it.
A HDC
is a holder who acquires an instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue, that it has been dishonoured, or that the maker, drawer, or a prior endorser has a valid excuse for not paying it off.
The BEA, Section 64 reads: 2
In particular the following alterations [ON THE FACE OF THE B/E] are material. Any alteration of:
the date,
the sum payable,
the time of payment,
the place of payment, and where a bill has been accepted generally,
the addition of a place of payment without the acceptor’s assent.
Endorsement ( a requirement to negotiate a bill or note)
The act of a payee, drawee, accommodation party, or holder of a negotiable instrument in signing the back of the instrument, with or without qualifying words,
to transfer rights in the instrument to another. OR
- a signature, with or without additional statements, that is commonly written on the back of the instrument.
