Negotiable Instrument.

Question 1

What are Payment Methods

Answer 1

• They are the procedures, instruments, and institutions that enables one to meet his/her payment obligations.
• Payment methods have been traditionally classified as credit or debit transfer
• Payment methods are either paper based, electronic or a combination of both.

Question 2

Holder for value

Answer 2

A person who holds or is in possession of a bill for which consideration as been given by the holder or someone else

Question 3

Holder in due course

Answer 3

A person who obtains the instrument bona fide for consideration before maturity without any knowledge of defect in the title of the person transferring the instrument.

Question 4

Instruments

Answer 4

A document of title of money

Question 5

Debit transfer

Answer 5

Payment transactions originated by the payee, based on the payer’s authority, instructing the payee’s bank to collect money from the payee’s account.

Question 6

Credit transfer

Answer 6

Is a payment instruction from a payer to its bank or financial service provider to transfer an amount of money to another account

Question 7

Negotiable Instrument

Answer 7

A signed document that promises a sum of payment to a specified person or the assignee

Question 8

Nature of Negotiable Instrument [5]

Answer 8

1. Negotiable instruments are substitutes for money.
2. They are treated as documents of tittle to money
3. Like money [and unlike ordinary contracts] consideration, good faith, etc are all presumed.
4. Negotiable instruments may be transfered from one person to another either by simple delivery only or by indorsement and delivery [without any need to give anyone notice]
5. The transferee is able to sue upon it his own name all parties to the instrument.

Question 9

Section 6 of the Bill of Exchange Act

Answer 9

What bills are negotiable

Question 10

“Nemo dat quod non habet”

Answer 10

Nobody may give what he does not have.

Question 11

Examples of Negotiable Instrument [5]

Answer 11

1. Cheques
2. Promissory note
3. Bankers draft [cashiers Cheques]
4. Money orders
5. Bills of exchange

Question 12

Bill of Exchange [what section of Act 55?]

Answer 12

“An unconditional order in writting, 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 or to the order of a specified person, or bearer.” section 1(1)of the Bills of Exchange Act, 1961 (Act 55)

Question 13

A bill

Answer 13

A bill is an order by one person to another, requiring that person to pay money to a third party, or to a bearer

Question 14

[T/F] The drawer will probably be asked to accept the bill as well as pay it

Answer 14

True.

Question 15

[T/F] if the drawee accept the bill by signing it, he or she will take primary responsibility for its payments

Answer 15

True.

Question 16

[T/F] Cheques are not usually accepted, the bank merely acts as the drawee and is however liable to the payee for the money.

Answer 16

False. Wrong conclusion

Question 17

[T/F] A bill may be negotiated/ sold at a discount before maturity

Answer 17

True

Question 18

[T/F] A bill which has not been accepted by a reliable person or bank can be negotiated for sale before maturity

Answer 18

False. It has to be accepted

Question 19

[T/F] To transfer an order bill, the payee must indorse(sign) the bill to another person to give a good title

Answer 19

True.

Question 20

[T/F] The indorser is the same as the holder

Answer 20

False. The indorsee is the same the holder

Question 21

[T/F] A bearer bill can not be easily transferred, it must be indorsed

Answer 21

False. A bearer bill need not indorsement to transfer

Question 22

Requirements of the BOE

Answer 22

1. Must be unconditional
2. Must be in writing
3. Signed by the drawer
4. It may be payable on demand or
5. At a fixed or determinable future time, and
6. Amount must be certain in money.

Question 23

An Unconditional order

Answer 23

Means that there must be no qualification which would make payment uncertain or give rise to cumbersome inquiries

Question 24

[T/F] payment conditioned to contingencies render the BOE or instrument invalid

Answer 24

True. And the happening of the event does not cure the defect.

Question 25

[T/F] an instrument which requires as a condition of payment of a receipt by the payee on the front or reverse of the document is not a negotiable Instrument.

Answer 25

True. See Bavins and Sims V London and South Western Bank [1990] 1 Q. B. 270

Question 26

Bavins and sims v London and South Western Bank

Answer 26

[1990] 1 Q. B. 270

• Plaintiff reccieved an instrument in the form of a cheques which read “pay to….provided the receipt form at the foot is duly signed and dated”
• the instrument was stolen from the plaintiff, an indorsement was forged on it and the receipt form signed.
• in an action by the plaintiff against the collecting bank, it was held that the instrument was not a cheque; it depended upon the receipt being signed and was not therefore an unconditional order.

Question 27

[T/F] a cheque with a requirement directly to the payee and not the bank is an unconditional order.

Answer 27

True. See Nathan v Ogden [1905] 94 L. T126

Question 28

Nathan v Ogden

Answer 28

[1905] 94 L. T. 126

• A cheque drawn in the ordinary form contained a clause requiring a receipt on the back of the cheque to be signed by the payee.
• the court held that the condition requiring the payee’s signature on the receipt was addressed to the payee alone, and not the bank; consequently in this case, the instrument was a cheque.

Question 29

Thairlwall v Great Northern Railway Company

Answer 29

[1910] 2K.B 509

• A dividend warrant contained a note that it would not be honoured after three months of the date of issue.
• The court held that the instrument was a cheque and the note did not make the order conditional. The words were a definition of what was considered a reasonable time within which the warrant were to be presented for payment. And more over a direction only to the payee.

Question 30

[T/F] An order requiring payment from a particular account is invalid

Answer 30

True. Because there might be inadequate funds when payment was required.

Question 31

Clear order to pay. [Little v Slackford]

Answer 31

1829 1 M. & M. 171

• An instrument in the form “please to let the bearer have £7…and you will oblige your humble servant…” was held to be a mere request and not a demand on the bank.

Question 32

[T/F] there must be one drawee or joint drawees.

Answer 32

True. There shouldn’t be drawees in tandem

Question 33

If the drawer and the drawee are the same person, the payee or holder may treat the instrument as…

Answer 33

A bill of exchange or a promissory note.

Question 34

Pay on demand

Answer 34

A bill is said to be payable on demand when it is immediately expressed to be payable, or when it is payable at sight or on presentation, or when no time for payment is expressed.

Question 35

Payable at sight

Answer 35

A bill is payable at sight when it is seen for acceptance or for payment.

Question 36

Williamson v rider

Answer 36

The majority of the English CA came to the conclusion that an instrument expressed to be payable “on or before” a particular date is not valid because the phrase does not state a fixed or determinable time; the words give the payer an option to repay on any day of his choosing before the date.

Question 37

[T/F] A holder may insert the “True date of issue” on an undated bill

Answer 37

True. If the bill is said to be payable at a fixed period after but the bill is undated

Question 38

[T/F] If a wrong date is inserted, a holder in due course may not obtain payment.

Answer 38

False. A holder in due course may still obtain payment, on the date which should have been inserted, not on the incorrect date.

Question 39

[T/F] Dates on a bill are presumed to be incorrect unless the contrary is proved

Answer 39

True.

Question 40

[T/F] An ante-dated and a post-dated bill is invalid

Answer 40

False. They are valid

Question 41

[T/F] A post-dated cheque is payable on demand because it is a valid bill.

Answer 41

False. A post-dated cheque is not a true cheque.

Question 42

A bearer bill [section 6(3)]

Answer 42

A bill is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank

Question 43

[T/F] The parties who sign a bill undertake liabilities which interlock and can be thought of as a chain of liabilities and rights

Answer 43

True.

Question 44

The payee cannot be the holder due course because…

Answer 44

Bills are not negotiated to the payee. The payee can only be a holder

Question 45

[T/F] The liability of signing a bill is co-extensive with the right to contract

Answer 45

True. And any person with the capacity to contract may sign a bill.

Question 46

[T/F] Forgery of the drawer’s or indorser’s signature invalidates the instrument as a bill so that a holder cannot obtain a good title to it.

Answer 46

True. Although he or she is given personal rights (by estoppel) against other parties.

Question 47

Promises to Pay, examples

Answer 47

Promissory notes and certificates of deposit

Question 48

Orders to pay, examples

Answer 48

Cheques, drafts, bills of exchange

Question 49

Acceptance

Answer 49

Consists of the signification of the assent of the drawee completed by delivery or notification of the assent to the holder of the negotiable instrument

Question 50

Maker

Answer 50

The party who makes an instrument in the form of a promissory note.

Question 51

Delivery. [what section of Act 55?]

Answer 51

Transfer of possession of an instrument from one person to another whether actual or construction. [section 97 of Act 55]

Question 52

Issue [what section of Act 55?]

Answer 52

The first delivery of an instrument, complete in form, to a person who takes it as a holder. [section 97 of Act 55]

Question 53

Negotiation

Answer 53

When an instrument is transferred for value to a person who then becomes entitled to hold it and can sue on it in his or her own name.

Question 54

A bill payable to bearer is negotiated by… [what section of Act 55]

Answer 54

Delivery. Section 29(2)

Question 55

A bill payable to order is negotiated by… [what section of Act 55?]

Answer 55

The holder’s endorsement completed by delivery. Section 29(3)

Question 56

Endorsement

Answer 56

Takes place when the name and/ or the signature of the transferor is written on the instrument and it is completed by delivery to the transferee.

Question 57

Endorsement in blank

Answer 57

When the endorser only signs on the bill without specifying the payee

Question 58

Bearer

Answer 58

The person in possession of an instrument payable to bearer or on which the last endorsement is an endorsement in blank

Question 59

Certificate of deposit

Answer 59

This is a promise to pay issued by a banker where the bank acknowledges that it has received a deposit from the depositor and promises to repay the depositor upon demand.

Question 60

Promissory note [what section of Act 55?]

Answer 60

Is “an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand, or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer.” section 83(1) of Act 55.

Question 61

Cheques. Including money orders. [what section of Act 55?]

Answer 61

“a cheque is a bill of exchange drawn on a banker payable on demand”. Section 72 of Act 55

Question 62

Money order

Answer 62

A payment order for a prepaid specified amount of money.

Question 63

A crossed cheque

Answer 63

Acrossedcheque is acheque that has been marked specifying an instruction on the way it is to be redeemed.

A common instruction is for the cheque to be deposited directly to anaccount with a bank and not to be immediately cashed by the holder over the bank counter.

Question 64

Banker’s draft.

Answer 64

Is a payment on behalf of a payer that is guaranteed by the issuing bank.

It is like asking a bank to write a cheque for you. You give them your money and they give you a cheque to give to the person you’re owing.

Question 65

Inchoate instrument [what section of Act 55?]

Answer 65

Signing an inchoate instrument gives the person in possession of it a prima facie authority to fill up the omission in any way he thinks fit - section 18(1)

Such filling up should be within reasonable time (which is a question of fact) and strictly within the authority given - section 18(2).

Question 66

[Valid or invalid] on or before a given date [williamson v. rider <1963>]

Answer 66

Invalid

Question 67

[Valid or invalid] twelve months after date

Answer 67

Valid

Question 68

[Valid or invalid] after sight

Answer 68

Invalid. Note, the distinction with at sight

Question 69

[T/F] Sums in words trump sums in figures in cases of discrepancies

Answer 69

True. Section 7(2)

Question 70

A sum is certain even if it is required to be paid:

Answer 70

1. With interest
2. By stated installments
3. By stated installments but with provision on full becoming due on default
4. According to an indicated rate of exchange to be ascertained as directed by the bill.

Question 71

[T/F] A bill is invalid because no value is given

Answer 71

False.

Question 72

[T/F] A bill is invalid because it is not dated

Answer 72

False.

Question 73

[ T/F] A bill is invalid because it does not specify place where drawn or payable

Answer 73

False.

Question 74

What is the legal effect of endorsing a bill on the part of the endorser to pay the immediate or any succeeding endorsee or bearer in case of the acceptor’s default?

Answer 74

Conditional contract

Question 75

What is the legal effect of endorsing a promissory note on the part of the endorser to pay the immediate or succeeding endorsee or bearer in case of the maker’s default?

Answer 75

Conditional contract

Question 76

What is the legal effect of accepting a bill, on the part of the acceptor to pay the payee, his order, or the bearer as the the instrument may require?

Answer 76

Absolute contract

Question 77

What is the legal effect of making a note, on the part of the maker to pay the payee, his order, or the bearer as the instrument may require?

Answer 77

Absolute effect

Question 78

A bill payable to bearer is negotiated by

Answer 78

Delivery

Question 79

A bill payable by order is negotiated by

Answer 79

The endorsement of the holder comleted by delivery

Question 80

The most important type of negotiable Instrument is…

Answer 80

The Bill of Exchange.

Question 81

[T/F] incase the of negotiable instruments, past consideration is good consideration

Answer 81

True. Example, a cheque is valid even if issued in settlement of an existing debt.

Question 82

Requirements of negotiability [4]

Answer 82

1. Value must have been given.
2. The holder of the instrument must have acted in good faith, honestly, without knowledge of any defect in title of a previous holder
3. The instrument must be complete and regular - it must not be overdue or show signs of unauthorized alterations.
4. The instrument must be deliverable - capable of transfer by being physically handed over

Question 83

Endorsement

Answer 83

Endorsement takes place when the name and/or signature of the transferor is written on the instrument and it is completed by delivery to the transferee.

Question 84

Conditions for endorsement [6]

Answer 84

1. It must be written on the bill itself and signed by the endorser.
2. It must the endorsement of the entire bill.
3. Where in a bill payable to order, the payee or endorsee is wrongly designated or the name is misspelt, the payee or endorsee may endorse the bill as described in the bill adding, appropriately, the proper signature of the payee or endorsee.
4. Where, in a bill payable to order, the payee or endorsee is wrongly designated or his name is misspelt, he may endorse the bill as therein described, adding, if he thinks fit, his proper signature.
5. Where there are two or more endorsements on a bill, each endorsement is deemed to have been made in the order in which it appears on the bill, until the contrary is proved
6. An endorsement may be made in blank or special or contain terms making it restrictive.

Question 85

Blank endorsement

Answer 85

No endorsee is specified and it is payable to bearer

Question 86

[T/F] A bill endorsed in blank may be converted by any holder into a special endorsement by writing above the endorser’s signature a direction to pay the bill to or to the order of himself or some other person.

Answer 86

True.

Question 87

Special endorsement

Answer 87

Specifies the person to whom, or to whose order, the bill is to be payable.

Question 88

Restrictive endorsement

Answer 88

Prohibits further negotiation of the bill

Question 89

A restrictive endorsement gives the endorsee the right to;

Answer 89

1. Receive payment of the bill.

2. Sue any party related to the bill that the endorser could have sued.

Question 90

Holder

Answer 90

Holder means the payee or endorsee of a bill or note who is in possession of it, or the bearer thereof

Question 91

[T/F] A person in possession of an unendorsed order bill is a holder nonetheless and can sue in his own name because he gave value for the bill

Answer 91

False [see good v walker(1892) 61 L. J. Q. B. 736.]

Question 92

[T/F] A drawer of a bill to his own order (even if unendorsed) is the holder thereof (upon its acceptance)

Answer 92

True. [see Walters v Neary (1904)]

Question 93

Value

Answer 93

Value means valuable consideration [section 97]

Question 94

[T /F] With knowledge of a defect in the bill, a person can still be a holder for value but not not a holder in due course

Answer 94

True.

Question 95

Acts that may cause defect in title: when the person negotiating the bill obtained it or acceptance thereof by[7]

Answer 95

1. Fraud
2. Duress
3. Force and fear
4. Other unlawful means
5. Or for an illegal consideration
6. Or when he negotiates it in breach of faith
7. Or such circumstances that amounts to fraud.

Question 96

[T/F] For one to be a holder in due course, the bill must be negotiated to him

Answer 96

True.

Question 97

Bills payable on demand [section 8(1)]

Answer 97

A bill is payable on demand which is expressed to be payable on demand or at sight or on presentation, or in which a time for payment is not expressed.

Question 98

When is a bill payable on demand overdue? [section 34(2)]

Answer 98

A bill payable on demand is overdue if it appears on the face of it to have been in circulation for an unreasonable length of time.

Question 99

Bills payable at a future time [section 9]

Answer 99

A bill is payable at a determinable future time when it is expressed to be payable at a fixed period after date or sight or on or at a fixed period after the occurrence of a specified event which is certain to happen though the time of happening may be uncertain.

Question 100

When is a bill payable at a future time overdue? [section 12]

Answer 100

A bill payable at a future time is not overdue till after the expiration of the three days of grace.

Question 101

[T/F] The defect of dishonor will not affect a holder in due course who takes the bill without notice of the dishonor.

Answer 101

True.

Question 102

Particular notice

Answer 102

Particular notice is where the holder had notice of the particular facts avoiding the bill

Question 103

General notice

Answer 103

General notice is where the holder had notice that there was some illegality or some fraud vitiating the bill, though he may not have been apprised of its precise nature

Question 104

Constructive notice

Answer 104

Constructive notice is the legal fiction that someone actually received notice (being informed of a case that could affect their interest) whether or not they truly did receive this.

Question 105

Promissory note [section 83(1)]

Answer 105

A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of, a specified person or to bearer

Question 106

[T/F] A promissory note is inchoate and incomplete until it is delivered to the payee or bearer

Answer 106

True

Question 107

Bank draft

Answer 107

A bank draft is a payment on behalf of a payer that is guaranteed by the issuing bank

Question 108

Order bill [section 6(4)]

Answer 108

A bill is payable to order which is expressed to be so payable or on which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicting an intention that it is not transferable.