Theme 2, Study Unit 1 - Paper-based payment methods

Question 1

What are paper-based payment methods ?

Answer 1

Involve using physical documents to transfer funds between accounts or individuals.

Question 2

What are some examples of paper-based payment methods ?

Answer 2

• Cheques.
• Bills of Exchange.
• Promissory Notes.
• Acknowledgement of debt.
• Cash.

Question 3

What are negotiable
instruments ?

Answer 3

• Are a subset of commercial paper, but not all commercial paper is negotiable.
• A negotiable instrument can be transferred from one party to another, while other commercial paper (e.g., share certificates) may not be easily transferred or negotiated.

Question 4

What are the characteristics of commercial paper and negotiable instruments ?

Answer 4

• Value Beyond Intrinsic Worth, these documents have a value higher than the physical paper itself because they embody an enforceable personal right.
• Transferable Rights, negotiable instruments allow the rights they represent to be transferred to a subsequent holder, who, if they take it in good faith and for value, usually acquires all rights associated with the document.

Question 5

What is the dual meaning of an negotiable instrument ?

Answer 5

• The document itself can be transferred from one person to another.
• The subsequent holder, acting in good faith, acquires all the rights associated with the instrument, even if the prior holder had a defective title.

Question 6

What are the requirements for Bills of Exchange ?

Answer 6

• Unconditional Order.
• In Writing.
• Addressed from One Person to Another.
• Signed by the Drawer.
• Payable on Demand or at a Fixed Time.
• Sum Certain.
• Payable to a Specific Person or Bearer.

Question 7

What is a promissory note ?

Answer 7

A bill is an order to pay, while a promissory note is a promise to pay.

Question 8

What are the requirements for a promissory note ?

Answer 8

• Unconditional Promise.
• In Writing.
• Signed by the Maker.
• Payable on Demand or at a Fixed Future Time.
• Sum Certain in Money.
• Payable to a Specific Person or to Bearer.

Question 9

Discuss the prescription period for Bills and negotiable instruments.

Answer 9

• 6 years for debts arising from a bill of exchange or other negotiable instruments.
• 3 years for other types of debt.

Question 10

Can an acknowledgement of debt be converted to a promissory note ?

Answer 10

The acknowledgment of debt must be modified to include an unconditional promise to pay the debt.

Question 11

What are the legal implications of converting an acknowledgement of debt into a promissory note ?

Answer 11

• One of the most significant advantages of converting an acknowledgment of debt into a promissory note is the extension of the prescription.
• A promissory note is a negotiable instrument, meaning that it can be transferred to a third party.
• A promissory note is enforceable more readily than a simple acknowledgment of debt.
• By converting an AOD into a promissory note, the terms of the debt become more clear and unambiguous, which can reduce the potential for disputes over payment terms, amounts, or timelines.