THE UNIVERSITY OF PAPUA NEW GUINEA

SCHOOL OF LAW

COMMERCIAL LAW [5.20709]

[These Notes are adopted and summarized from various sources by Maurice A Laufa and intended
for student learning. Please take time to read cases cited in the notes.]

Topic 5: Law on Negotiable Instruments

5.1 Introduction
Objectives:

On completion of this topic, students should be able to:-

1. Explain the nature of a negotiable instrument;

2. Define and outline the features of a bill of exchange;
3. Define and distinguish between the different types of bills of exchange;
4. Identify and explain the relationship, rights, duties and liabilities of the parties to a bill of
exchange;
5. Explain the rules and procedures on negotiation, acceptance, non-acceptance and discharge
of a bill of exchange;
6. Understand and explain the rules on electronic bills of exchange;
7. Define a cheque and distinguish it from other bills of exchange;
8. Describe the legal effect of crossings of cheques and the bank’s duties in relation thereto;
9. Explain the duties and liabilities of banks and customers in relation to cheques; and
10. Define a promissory note and distinguish it from bills of exchange.

Origins of negotiable instruments

In early times in England, prior to statutes regulating its use, negotiable instruments were devised
and used by trading merchants as a way of settling accounts without the need to transfer cash
payment and ensuring security of transaction. Because negotiable instruments have their history in
the customs of merchants, these codes and customs (law merchants) formed the original basis of
this area of the law. A large volume of cases on negotiable instruments based on the law merchants
was built before England introduced the Bills of Exchange Act, 1882. This Act brought together and
codified the law merchant and the common law on negotiable instruments.

PNG’s law on negotiable instruments is the Bills of Exchange Act, 1951, adopted from Australia,
both which are based on the English Bills of Exchange Act, 1882. The English and Australian case
law on negotiable instruments prior to PNG’s independence are part of the laws of PNG. And those
case law on negotiable instruments in England and Australia after PNG’s independence have strong
persuasive value as our Act is based on the English and Australian legislations.

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Nature of negotiable instruments

A negotiable instrument is not money but it represents and performs the function of money. It is
either a promise or a order to pay money. It is a means of effecting payments or settlement of
accounts. The holder of a negotiable instrument is entitled to payment of the sum of money
specified on the face of the instrument. A cheque is the most common form of negotiable
instrument.

The promise, undertaking, order or rights contained in the instrument may and can be transferred or
‘negotiated’ from one person to another, with the transferee acquiring the right to have the promise,
undertaking or order to be enforced by legal redress, if need be, in the transferee’s own name and
for his/her benefit.

If the transferee takes the instrument for value and without notice of any defect in title, he/she
acquires a full legal title, notwithstanding that the transferor had no or defective title thereto. This
essentially makes the instrument negotiable.

The character of negotiability is established either by custom of trade or by statutory rules. When a
custom is ascertained and proved in a court, it becomes law and therefore can be invoked and
enforced.

Characters of a negotiable instrument

The following characters are inherent in a negotiable instrument:-

a) the rights of property embodied in the instrument are capable of being transferred to another
person by mere delivery of the instrument or by endorsement and delivery of the instrument.
b) the person to whom the instrument is negotiated and who take in good faith and for value
acquires a good title thereto, notwithstanding that the transferor lacked title or had a
defective title.
c) the holder for the time being of the instrument may and can sue in his/her own name.

A negotiable instrument must appear to be in order on the face of it – that is, the instrument must
not show signs of unauthorized alterations and must not be overdue.

 Examples of documents recognized as negotiable instruments are:-

i. bills of exchange;
ii. cheques;
iii. promissory notes;
iv. bearer bonds;
v. debentures payable to bearer;
vi. dividend warrants;
vii. share warrants; and
viii. banker’s draft.

 Examples of documents that are NOT considered negotiable instruments are:-

i. postal orders;
ii. money orders;
iii. IOUs;
iv. share certificates;
v. share warrants; and
vi. bills of lading.
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Reference & Reading:
Bills of Exchange Act, 1951
Andrew Gibson & Douglas Fraser, Commercial Law, 4th Edition (2001), Longman (Pearson
Education), Sydney, Australia, Chapter 28.
Goodwin v Roberts [1876] App. Cas. 476
Picker v London & County Banking Co [1887] 18 QBD 515

5.2 Bills of exchange

Parties to a bill of exchange

a) Drawer: person who initiates or draws the bill and gives the order to pay;
b) Drawee: person to whom the bill is addressed – a bill is said to be drawn on that
person;
c) Acceptor: a person who accepts the bill;
d) Payee: person to whom the bill is payable;
e) Endorser: person who endorses the bill; and
f) Endorsee: person who is the holder of the bill.

5.2.1 Definition

Section 8 Bills of Exchange Act, 1951, provides:

8. BILLS OF EXCHANGE.

(1) Subject to this Division, 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 or to the order of a
specified person, or to bearer.

(2) An instrument that does not comply with the conditions specified in Subsection (1), or that orders
any act to be done in addition to the payment of money, is not a bill of exchange.

(3) An order to pay out of a particular fund is not unconditional within the meaning of this section,
but an unqualified order to pay, coupled with–
(a) an indication of a particular fund out of which the drawee is to re-imburse himself, or a particular
account to be debited with the amount; or
(b) a statement of the transaction that gave rise to the bill,

is unconditional.

(4) A bill of exchange is not invalid by reason of the fact that–

(a) it is not dated; or
(b) it does not specify the value given, or that any value has been given for the bill; or
(c) it does not specify the place where it is drawn, or the place where it is payable.

5.2.2 Elements of bill of exchange

a) Unconditional order (s.8(1) BEA)

Firstly, a bill must contain an order or command, as opposed to a request to pay. The order is
usually expressed as ‘Pay’ or ‘Please pay’.
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Secondly, the order to pay contained in the bill must be unconditional – that is the order must be
unqualified as between the drawer and the drawee.

Note under s.8(3) an “order to pay out of a particular fund is not unconditional within the meaning of this
section, but an unqualified order to pay, coupled with (a) an indication of a particular fund out of which the
drawee is to re-imburse himself, or a particular account to be debited with the amount; or
(b) a statement of the transaction that gave rise to the bill, is unconditional.”

Cases:
Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 52
Bavins v London & SW Bank [1900] 1 QB 270
Peacock v Williams [1909] 28 NZLR 354
Guaranty Trust Co of New York [1918] 2 KB 623

b) In writing (s.8(1) BEA)

The order must be in writing. ‘Writing’ includes painting, engraving, typewriting, lithography,
photography and all other modes of representing or reproducing words in a visible form.

Representing or reproducing in visible form would include electronic form – refer to the article on
electronic bills of exchange: ‘Electronic Bills of Exchange: Will The Current Law Recognise
Them?’, by Leif Gamertsfelder (1998) UNSWLJ 50

c) From one person to another (s.8(1) BEA)

The order must be addressed by one person (drawer) to another (drawee). If the drawer and drawee
are the same person, as in a banker’s draft, then the instrument is not a bill of exchange since it is
not addressed to another person. In such a case or where the drawee is a fictitious person or lacks
the legal capacity to contract, the holder of the instrument may at his/her discretion elect to treat the
instrument as a bill of exchange or a promissory note (s.10(2) BEA).

Cases:
Mason v Lack [1929] All ER Rep. 639
Gray v Milner [1819] 8 Tanut 739

d) Signed by the person giving it (s.8(1) BEA)

The bill must be signed by the drawer or the drawer’s authorized agent. (ss.3 & 33 BEA) If the
drawer’s signature is forged, then the instrument is not a bill of exchange (s.29 BEA).

e) To pay on demand or at a fixed or determinable future time (s.8(1) BEA)

The order contained in the bill requires the drawee to pay on demand or at a fixed or determinable
future time. A bill is payable on demand where it is expressed to be so or at sight or presentation.
Such a bill is referred to as a demand or sight bill. The holder therefore is entitled to demand
payment immediately.

Note, the words ‘ón demand’ do not usually appear on a cheque but they are implied (s.15(1)(b)
BEA). A cheque is defined as a bill drawn on a banker and payable on demand (s.1(1) BEA).

The words ‘at sight’ means on being seen by the drawee, and the words ‘on presentation” means on
being presented to the drawee.

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The demand for payment of a bill must be made within a reasonable time. A cheque that has been in
circulation for twelve (12) months or more is treated as stale and a banker may refuse to honour it
(s.81 BEA).

Time of term bill

i) “A fixed future time” is the exact time in which to pay the bearer.
ii) A bill is payable at a “determinable future time” if it is expressed to be payable:-

a) at a fixed period after the date on the bill;

b) at a fixed bill after sight, that is after the date of its acceptance, (s.19(2)(c) BEA); or
c) on or at a fixed period after the occurrence of a specified event that is certain to happen,
though the timing of happening may be uncertain (s.16 BEA).

Where a bill is expressed to be payable at a fixed period after date, but is undated, then any holder
of the bill may insert the true date of issue. Similarly where the acceptance of a bill payable at a
fixed period after sight is undated, any holder may insert the true date of issue (s.17(1) BEA). If by
bona fide mistake, a wrong date is inserted, a subsequent holder in due course is entitled to rely on
the date appearing on the bill and to have the bill paid accordingly (s.17)2) BEA).

In regard to time bill, in computing the time for payment, three (3) ‘days of grace’ are added to the
time of payment unless there is a contrary intention in the instrument (s.19(2)(a) BEA).

Cases:
Korea Exchange Bank Ltd v Debenhams Central Banking Ltd [1979] Ll. LR 548 (CA)
Alexander v Thomas [1851] 16 QB 333
William v Rider [1963] 1 QB 89
Barker v Efford [1893] 4 AJR 161
Carlos v Fancourt [1794] 5 Term Rep. 485
Pollock v Bank of New Zealand [1901] 20 NZLR 174

f) A sum certain in money (s.8(1) BEA)

The order contained in the bill of exchange requires the drawee to pay a sum certain in money. A
sum is certain, that is, capable of being ascertained, even if the sum is required to be paid with:-

a) Interest; or
b) By stated instalments; or
c) By stated instalments, with a provision that in default of any instalments, the whole sum
becomes due; or
d) In accordance with a stated rate of exchange or a rate of exchange to be ascertained as
directed by the bill. (s.14(1) BEA)

An order to pay a fixed sum of money ‘together with all bank charges’ or ‘ánd costs’ is not an order
to ‘pay sum certain in money’.

Where the sum payable under a bill is expressed in words and figures and discrepancy arises
between the two, the sum expressed in words is the amount payable (s.14(2) BEA)

Cases:
Benley v Jamieson [1863] 1 W & W (L) 145
Standard Bank of Canada v Wildey [1919] 19 SR (NSW) 384
Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 52

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g) To or to the order of a specified person (s.8(1) BEA)

A sum certain in money must be paid to a specified person or bearer or it must be paid to the order of a
specified person or bearer. A bill payable to “cash” is not valid since it is not payable to a specified person or
bearer or to the order of a specified person or bearer.

A bill is payable to order where it is so expressed or where it is expressed to be payable to a specified person
and does not contain any words prohibiting transfer (s.13(4) BEA). Such a bill is referred to as a ‘order bill’.
It is negotiable and must be endorsed by the holder and delivered (s36(3) BEA).

A bill is payable to bearer where:-

a) It is expressed to be so payable – eg ‘Pay bearer’ or ‘Pay Kanage or bearer’;

b) The only or last endorsement is an endorsement in blank; or
c) The payee is a fictitious or non-existing person (ss.13(3), 12(3) BEA).

An ‘endorsement in blank’ is an endorsement that does not specify an endorsee (s.1(1) BEA).
Cases:
Mead v Young [1790] 4 Term Rep. 28
Cole v Milsome [1951] 1 All ER 311
Orbit Mining & Trading Co Ltd v Westminister Bank Ltd [1963] 1 QB 794
City Bank v Rowan [1893] LR (NSW) 127

An instrument that does not conform to the above conditions (s.8(1) BEA) or that requires any
additional acts prior to payment is not a bill of exchange (s.8(2) BEA). However, notwithstanding
non-conformity with the conditions, a bill of exchange may still have contractual validity as
between the parties in the context of general contract law.

Types of bills of exchange

1) Inland bill

An inland bill is one that is either drawn and payable within Australasia (Australia, PNG, any
territory of Australia, New Zealand and Fiji) (s.1(1) BEA) or drawn within and on some person
resident in Australasia (s.9 BEA). Unless the contrary intention appears on the face of the bill, the
holder may treat the bill as an inland bill.

2) Foreign bill

A bill other than an inland bill is a foreign bill (s.1(1) BEA). The significance of the distinction
between an inland and foreign bill is that if the latter is dishonored by non-acceptance or non-
payment, “it must be protested for non-acceptance or non-payment”. Otherwise the drawer and the
endorsers are discharged (s.56(2) BEA).

3) Non-transferable bill

Where a bill contains words prohibiting transfer (eg – ‘Pay Kekeni only’) or words indicating that it
should not be transferable (eg – ‘Pay Kekeni, not transferable’), the bill is valid as between the
parties but it is not negotiable. If Mero purports to transfer the bill to Kekeni, Mero has no right to
enforce payment in his own name. only Kekeni can sue on the bill.

The words ‘not negotiable’ written on the face of the bill, other than a cheque, render the bill non-
transferable. A cheque crossed ‘non-transferable’ can only be good as that of the transferor s.88
BEA).
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4) Inchoate bill

An inchoate bill is one that is lacking in all material particular. The person in possession of such a
bill has a prima facie authority to fill up the omission in any way fit (s.21(4) BEA). Thereafter the
bill becomes negotiable and the holder in due course is entitled to enforce it as a valid and effectual
bill (s.25(7) BEA).

Note that – failure to date a bill or to specify the value given or value has been given therefore or to
specify the place where it is to be drawn or payable, does not render a bill invalid (s.8(4) BEA).

5) Accommodation bill

Example: Poro and Kanage are friends. Poro is in need of funds and so arranges with Kanage,
that Poro will draw a 30 days bill on Kanage which Kanage will accept. Witout any
consideration Kanage accepts the bill. Poro can then discount the bill with a bank or
a bill broker and obtain cash. On the maturity date Kanage will be liable on the bill,
not because he has received any consideration from Poro but because he (Kanage)
has ‘accommodated’ or ‘lent his name and credit’ to Poro. This bill is referred to as a
‘accommodation bill’ and Kanage is an ‘accommodation party’. An accommodation
party can be a drawer, acceptor or endorser of the bill (s.1(1) BEA). He/she is liable
on the bill to a holder for value, whether or not the holder knew the accommodation
party to be such when he/she took the bill (s.33 BEA).

5.2.3 Negotiating a bill (ss.36 – 42 BEA)

a) How a bill is negotiated (s.36 BEA)

A bill is negotiated when it is transferred from one person to another (Delivery) in a manner that
constitutes the transferee the holder of the bill (BEA, s36(1)).

Where a bill is negotiated back to the drawer, prior endorser or acceptor (which is possible if the
bill is negotiated many times), that person may re-issue and further negotiate the bill, but is not
entitled to enforce payment if the bill against any intervening party to whom he was previously
liable (BEA,s42)

Cases:
Commissioners of the State Saving Bank of Victoria v Permewan Wright & Co Ltd (1914) 19 CLR
474
Goodwin v Roberts [1876] 1 App. Cas. 476
Simmons v London Joint Stock Bank [1891] 1 Ch 270 at 294
Smith v Commercial Banking Co of Sydney Ltd (1910) 11 CLR 667
Miller Associates (Australia) Pty Ltd v Bernington Pty Ltd [1975] 7 ALR 144

b) The holder of a bill (ss.1 & 32 BEA)

The transferee becomes holder of the bill when the bill is transferred from one person to another
(BEA,s36(1)). Holder of the bill is defined as:-

a) the bearer of the bill; or

b) the payee or endorsee of the bill who is possession for it (BEA,s1(1)).

A holder for value is a holder who has given or deemed to have given valuable consideration for the
bill (BEA, s32(3)).
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A holder of a bill may sue on it in his own name. If he is a holder in due course (see below), he
holds the bill free from any defect from title (e.g. fraud) of prior parties, as well as from mere
personal defenses available to prior parties among themselves and he may enforce payment against
all parties liable on the bill (BEA,s43(1)).

Cases:
Motor Ploughs Ltd v Forsyth [1932] 32 SR (NSW) 259
Sydney Raper Pty Ltd v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227
D & J Fowler Ltd v French [1914] SALR 254

c) Holder for value and consideration (s.32 BEA)

Where a holder of a bill has given a valuable consideration for the bill, he/she is considered a holder
for value and consideration.

32. VALUE AND HOLDER FOR VALUE.

(1) Valuable consideration for a bill may be constituted by–

(a) any consideration sufficient to support a simple contract; or
(b) an antecedent debt or liability.
(2) For the purposes of Subsection (1)(b), an antecedent debt or liability is valuable consideration
whether the bill is payable on demand or at a future time.
(3) Where value has been given at any time for a bill, the holder shall be deemed to be a holder for
value as regards the acceptor and all parties to the bill who became parties prior to that time.
(4) Where the holder of a bill has a lien on it, arising from contract or by implication of law, he shall
be deemed to be a holder for value to the extent of the sum for which he has a lien.

Cases:
Pollway Ltd v Abdullah [1974] 2 All ER 381
Oliver v Davis [1949] 2 KB 727
Diamond v Graham [1968] 2 All ER 909

e) Holder in due course (ss.1(1);34 BEA)

A “Holder in due course” is defined as a holder who takes the bill, which was complete and regular
on the face of it under the following conditions:-

a. that he becomes the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact; and

b. that he took the bill in good faith and for value, and at the time when the bill was
negotiated to him, he had no notice of any defect in the title of the person who negotiated it
(BEA,s1(1)).

Noteworthy points:

i. The bill must be completed and regular on the face;

ii. The bill must not be overdue;
iii. Holder has no notice of previous dishonor of the bill, if such was the case;
iv. The bill must be taken in good faith;
v. The bill must be taken for value (value means valuable consideration (BEA, s1(1)));
vi. The bill must be taken without notice of any defect in the title of the immediate
transferor;
vii. Original payee is not a holder in due course – A holder in due course must be
someone to whom the bill is negotiated.
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Cases:
Arab Bank Ltd v Ross [1952] 2 QB 216
Hadley & Co v Henry [1896] 22 VLR 230
Douglas v Tieman [1931] SR (NSW) 149
Gondall v Australian Freehold Banking Corp. [1890] 16 VLR 29

Duties of the holder

The holder of the bill has the following duties:-

a) Duty to present the bill for acceptance – arises where the holder receives a bill of the type that
is required to be presented for acceptance, and when it matures it is again presented for payment.

b) Duty to present the bill for payment – All bills must be duly presented for payment, for the
drawer and endorsers to be discharged from liability to the bill (BEA,s50(1)&(2)). The proper place
for presenting a bill for payment is the place specified in the bill. A bill is dully presented for
payment:-

i. If it is not payable on demand (i.e. time bill) when it is presented on the day it falls due
(BEA,s19;50(3)(a));
ii. If it is payable on demand, when it is presented within a reasonable time after its issue (in
order to render the drawer liable), and within a reasonable time after its endorsement (in
order to render the endorser liable) (BEA,s50(3)(b)&(6));
iii. When it is presented by the holder or by some person unauthorized to receive payment on
his behalf at a reasonable hour on a business day at the proper place to the person designated
by the bill as payer or to some person authorized to pay or refuse payment on his behalf, if
such person can be found (BEA,s50(3)(c));
iv. If it is drawn on or accepted by two or more persons who are not partners and no place of
payment is specified, when it is presented to them all (BEA,s50(3)(d)); and
v. If the drawee or acceptor is dead, and no place of payment is specified, when it is specified,
when it is presented to a personal representative if there is one and if he can be found with
the exercise of reasonable diligence (BEA,s50(3)(e)).

c) Duty to give notice to dishonor – A bill may be dishonored by non-acceptance or nonpayment,

which is constituted 2.3 above (Acceptance of bill).

d) Duty to note and protest the bill s(56 BEA).

Please read the provisions of s.56 as quoted below.

56. NOTING OR PROTEST OF BILLS.

(1) If the holder thinks fit, where an inland bill has been dishonoured it may be noted for non-
acceptance or non-payment, as the case may be, but it is not necessary to note or protest any such bill
in order to preserve the recourse against the drawer or endorser.

(2) Where a foreign bill, appearing on the face of it to be such–

(a) has been dishonoured by non-acceptance; or
(b) has not been previously dishonoured by non-acceptance, but is dishonoured by non-payment,

the bill must be duly protested for non-acceptance or non-payment, as the case may be, and if it is not
so protested the drawer and endorsers are discharged.

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 (3) Where a bill does not appear on the face of it to be a foreign bill, protest for dishonour is
unnecessary.

(4) A bill that has been protested for non-acceptance may be subsequently protested for non-payment.

(5) Subject to this Act, when a bill is noted or protested it must be noted within 24 hours after its
dishonour.

(6) When a bill has been duly noted, the protest may be extended as of the date of the noting.

(7) Where the acceptor of a bill becomes bankrupt or insolvent or suspends payment before it
matures, the holder may cause the bill to be protested for better security against the drawer and
endorsers.

(8) Subject to Subsection (9), a bill must be protested at the place where it is dishonoured.

(9) Where a bill–

(a) is presented through the post and returned by post dishonoured, it may be protested at the place to
which it is returned–
(i) on the day of its return if received during business hours; and
(ii) if not received during business hours, then not later than the next business day; and
(b) that is drawn payable at the place of business or residence of some person other than the drawee,
has been dishonoured by non-acceptance it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentation for payment to, or demand on, the drawee is
necessary.

(10) A protest must contain a copy of the bill, must be signed by the notary or person making it, and
must specify–
(a) the person at whose request the bill is protested; and
(b) the place and date of protest; and
(c) the cause or reason for protesting the bill; and
(d) the answer (if any) given, or the fact that the drawee or acceptor could not be found.

(11) Where a bill is lost or destroyed, or is wrongly detained from the person entitled to hold it,
protest may be made on a copy or written particulars of the bill.

(12) Protest is dispensed with by any circumstance that would dispense with notice of dishonour.

(13) Delay in noting or protesting is excused when the delay is caused by circumstances that are
beyond the control of the holder, and not imputable to his default, misconduct or negligence.

(14) When the cause of delay ceases to operate, the bill must be noted or protested with reasonable
diligence.

f) Complete and regular on the face of the bill

Cases:
Banco di Roma SPA v Orru [973] 2 LIR 505
Bank fur Gemeinwirschaft v City of London Garagoa Ltd [1971] 1 All ER 541

g) Before it was overdue (s.5 BEA)

Please read s.5 below:

5. WHEN NOTING EQUIVALENT TO PROTEST.

For the purposes of this Act, where a bill or note is required to be protested–

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 (a) within a specified time; or
(b) before some further proceeding is taken,

it is sufficient that the bill has been noted for protest before the expiration of the specified time or the taking of
the proceeding, and the formal protest may be extended, as of the date of the noting, at any time afterwards

h) Without notice that the bill had been previously dishonored or such was the fact

Cases:
Hornby v McLaren [1909] TLR 494
H Rowe & Co Pty Ltd v Pitts [1973] 2 NSWLR 159

i) In good faith (s.35 BEA)

Please read s.35 below:

35. PRESUMPTION OF VALUE AND GOOD FAITH.

(1) Every party whose signature appears on a bill shall prima facie be deemed to have become a party to the
bill for value.

(2) Subject to Subsection (3), every holder of a bill shall prima facie be deemed to be a holder in due course.

(3) Where, in an action on a bill, it is admitted or proved that the acceptance, issue, or subsequent negotiation
of the bill is affected by–
(a) fraud or duress, or force and fear; or
(b) illegality,

the burden of proof imposed by Subsection (2) is shifted, until the holder proves that, after the alleged fraud or
illegality, value in good faith has been given for the bill.

Cases:
Raphael & another v Bank of England [1855] 17 QB 161
Jones v Gordons [1877] 2 App. Cas. 616

j) For value (s.35 BEA) - read s.35 above quoted.

k) Notice of any defect in the title of the person who negotiated it (s.43 BEA)

Section 43(2) provides:

(2) Where a holder’s title is defective–

(a) if he negotiates the bill to a holder in due course–the holder in due course obtains a good and complete title
to the bill; and
(b) if he obtains payment of the bill–a person who pays him in due course gets a valid discharge for the bill .

Cases:
Sheffield v London Joint Stock Bank [1888] 13 App. Cas. 333
London Joint Stock Bank v Simmons [1892] AC 201
Hayes v Robertson [1889] 15 VLR 480
Gondall v Australian Freehold Banking Corp. [1890] 16 VLR 29
Bank of Australia v Curtis [1927] NZLR 247
Douglas v Tieman [1931] SR (NSW) 149

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l) Presumption in favour of holder (s.35 BEA) - Read s.35 quoted above.

m) Negotiation of a bearer bill (s.36 BEA) - read s.36 above quoted.

Case:
Compertz v Bantlett [1853] 2 E & B 849

5.2.4 Endorsement of bill of exchange

a) Endorsement

Cases:
Smith v Commercial Banking Co of Sydney Ltd (1910) 11 CLR 667
Trimper v Frahn [1925] SASR 347

b) Types of endorsement – read the provisions of the Act cited hereinbelow.

i) Conditional endorsement (s.38 BEA)

Case:
Laney v Gates [1953] 325 SR (NSW) 372
ii) Endorsement in blank and special endorsement (s.39 BEA)
iii) Restrictive endorsement (s.40 BEA)
iv) Effect of forged or unauthorized endorsement (s.29 BEA)
Cases:
Welch v Bank of England [1955] 1 All ER 811
Ardevn v Bank of NSW [1956] VLR 569
Greenwood v Martin Bank Ltd [1833] AC 51
Gerrard v Lewis [1882] 10 QBD 30
Scholfield v Londesborough [1896] AC 514

5.2.5 Acceptance of bill of exchange

a) Definition and requisites (ss.1(1), 22 & 23 BEA)

Acceptance’ means ‘the signification by the drawee of his assent to the order of the drawer,
completed by delivery’(s.1(1) BEA). By accepting the bill, the drawee (now the acceptor) promised
the payee and every lawful holder of the bill, that he (acceptor) will pay it in accordance with the
terms of the acceptance.

Acceptance of a bill is effected by the drawee writing “Accepted” across the face of the bill and
then signing. Also the signature of the drawing without any additional words is regarded as a
significant acceptance.

A person who has not signed a bill as acceptor is not liable on it as such (BEA, s28(1)).

An acceptance is invalid if it is not written on the bill and signed by the drawee, or if it states that
the drawee will perform his promise by way other means than the payment of the money (BEA,
s22)

Bill must be presented to the drawee for acceptance in the following three cases:-

I. Where the bill is payable after sight so as to fix the maturity of the instrument);
II. Where the bill itself expressly stipulates that it shall be presented for acceptance; and
III. Where the bill is drawn payable elsewhere than at the residence of the place of
business of the drawee (BEA,s44(1)&(2))
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 - In all other cases (e.g. Bills payable on demand) presentation for the acceptance is
not necessary in order to render a party liable on the bill (BEA,s44(3)).

Where the bill is required to be presented for acceptance, the following rules apply:-

a) Presentation must be made:

i. By or on behalf of the holder;

ii. To the drawee or to some person authorized to accept or refuse acceptance on
his behalf;
iii. At a reasonable hour;
iv. On a business day;
v. Before the bill is overdue (BEA,s46(1)(a)&(b))

b) Where the bill is addressed to two or more drawees who are not partners,
presentation must be made to them all, unless one has authority to accept for all, in
which case presentation may be made to him only (BEA, s46(1)(c)).

c) Where the drawee is dead, presentment may be made to his personal representative
(BEA, s46 (1) (d)).

d) Where the drawee is insolvent, presentment may be made to him or to his trust or
assignee (BEA,s46(1)(e)).

e) If authorization by agreement or commercial usage, a bill may be presented through

the post (BEA,s46(2)).

Presentation for acceptance, though ordinarily necessary, is excused and the bill may be treated as
dishonored by non-acceptance where:-

a) The drawee is dead, insolvent, a fictitious, or a person not having capacity to

contract by bill, or
b) After the exercise of reasonable diligence, presentation cannot be effected, or
c) Although the presentation has been irregular, acceptance has been refused on some
other ground (BEA, s46(3)).

Where a bill payable after sight is negotiated, the holder must present it for acceptance or negotiate
it within a reasonable time; otherwise the drawee and all endorsers prior to the holder are
discharged. What is reasonable time depends on the nature of the bill, the usage of the trade with
respect to similar bills, and the facts of the particular case (BEA,45)

Types of acceptance:-

a) General acceptance:- An acceptance that assents without qualification to the order of

the drawer. This renders the acceptor liable to pay the bill in full when it matures or
becomes due.
b) Qualification acceptance:- one that in express terms, varies the effect of the bill as
drawn by:-

i. Including a condition,
ii. Accepting to pay part only of the amount for which the bill is
drawn,
iii. Accepting to pay only at a specified place,

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 iv. Specifying a time for payment which is different from that set out
in the bill accepting to pay part only of the amount, to pay only at
a specified place, time which is different from that set out in the
bill).

The holder of the bill may refuse to take a qualified acceptance and treat the bill as dishonored for
non-acceptance (BEA,s49(1)). However where a qualified acceptance is taken by the holder, the
drawer or endorser has not expressly or impliedly authorized the holder to take a qualified
acceptance or does not subsequently assent to such an acceptance, then such drawer or endorser is
discharged from his liability on the bill (BEA,s49(2)). The discharging from liability does not apply
to a partial acceptance of which due notice has been given (BEA, s49(3)

Where the drawer or endorser of a bill receives notice of a qualified acceptance and does not
express his dissent to the holder within a reasonable time, he is deemed to have assented to the
qualified acceptance (BEA, s49(4))

Bill may also be treated as dishonored where:-

a) The drawee gives only a qualified acceptance (BEA,s49(1)) or

b) Presentation for the acceptance is executed as indicated above (BEA,s46(3))

Where a bill is dishonored by non-acceptance the holder therefore has an immediate right of
recourse (action) against the drawer and prior endorsers. He need not wait until the maturity or due
date and no presentment for payment is necessary (BEA,s48(2))

If the drawee does not within the customary period (usually 24 hours) after presentment for
acceptance, accept the bill, a duty is imposed on the holder to treat the bill as dishonored by non-
acceptance forthwith. If the holder failed to do so he loses his right of recourse against the drawer
and endorser (BEA,s47).

The holder is required to give notice of dishonor to the drawer and each endorser, else drawer and
endorser are discharged from liability on the bill (BEA,s53(1))
The duty to give notice of dishonor also applied to the dishonor of a bill by non-payment upon
maturity (BEA,s53(1)).

Points to note relating to notice of dishonor of a bill by both non-acceptance and non-payment:-

a) Notice of dishonor must be given by the holder of the bill or by an endorser

who is himself liable on the bill, or by an agent acting on behalf of either
(BEA, s54(1));

b) The notice is given to the drawer and each endorser (BEA,s53(1));

c) The notice need not be in any special or particular form. It may be oral or in
writing, provided that the identity of the bill and its dishonor by non-
acceptance or non-payment are sufficiently indicated. The mere return of a
dishonored bill to the drawer or endorser is sufficient notice (BEA,s54(10))

Notice of dishonor is dispensed with:-

a) Where reasonable diligence is exercised but notice cannot be given or does

not reach the drawer or endorser;

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 b) Where notice is waived by the party entitled to it.

c) As regards the drawer, where:

i. The drawee and drawer are the same person;

ii. The drawee is a fictitious person or a person having no capacity to contract;
iii. The drawer is the person to whom the bill is presented for payment;
iv. The drawee or acceptor is, as between himself and the drawer under no
obligation to accept or pay the bill; or
v. The drawer has countermanded payment;

d) As regards the endorser, where:-

i. The drawee is a fictitious person or a person not having capacity to contract, and the
endorser was aware of the fact at the time when he endorsed the bill;
ii. The endorser is the person to whom the bill is presented for payment; or
iii. The bill was accepted or made for his accommodation (BEA,s55(3))

A holder of an inland bill may protest, which is mandatory as regards to foreign dishonor bills
(BEA,s56)

Where the bill for non-acceptance, and is not overdue, any person is not being a party already liable
may with the consent of the holder, accept (either whole or part of the sum drawn) it for the honor
of any party liable on the bill. This acceptance is referred to as acceptance for honor supra protest,
and the person accepting is called an acceptor for honor supra protests. The acceptance for honor is
thus liable to the holder, and to all parties to the bill (BEA,s70)

Before the acceptor for honor is liable to pay, the bill must be presented to the original drawee at
maturity for payment. Upon the drawee’s refusal to pay, the bill must be protested this time for non-
payment and presented to the acceptor for honor (BEA, ss71(1);72)

Cases:
Smith v Commercial Banking Co of Sydney Ltd (1910) 11 CLR 667
Bank of Van diemen’s Land v Bank of Victoria [1869] 6 WW & AB (L) 178

5.2.6 Payment of bill of exchange

a) Payment
i) Rules on presentation for payment (s.50 BEA)
ii) Delay or non-presentation for payment (s.51 BEA)
ii) Payment in due course (s.64 BEA)

b) Non-payment
i) Dishonor (s.48 BEA)
ii) Notice of dishonor and rules (ss.53 & 54 BEA)
iii) Non-notice and delay (s.55 BEA)

5.2.7 Liabilities of parties to bill of exchange

a) Capacity

- Capacity to incur ability as a party to a bill is co-extensive with capacity to contract

(BEA,s27(1)). Where a bill is drawn by a minor or a corporation having no capacity or
15 | P a g e
 power to incur liability on the bill, the drawing or endorsement entitled the holder to receive
payment of the bill and to enforce it against any party thereto, other then the minor or
corporation (BEA,s27(3)).

b) Signature

- A person is liable on a bill as a drawer, endorser or acceptor unless he has signed the bill as
such (BEA,s28(1)). A signature is therefore essential to liability. However the following
rules apply:-

i. A person who signs a bill in a trade or assumed name is liable on it as if he had

signed it in his own name (BEA,s27(2)(a));
ii. The signature of the name of a firm will blind all members of the firm if the person
signing had authority to bind them (BEA,s27)(2)(b));
iii. A company with capacity to incur liability on a bill will be bound if the bill is made,
accepted or endorsed in its name or in its behalf or on its account by its duly
authorized agent or attorney (Companies Act, s38);
iv. A signature by procuration (i.e. on behalf of another, usually signified by per pro or
pp) operated as notice that the agent has limited authority to sign and the principal is
only bound if the agent was acting within the actual limits of his authority
(BEA,s30);
v. Where a person signs a bill but adds words indicating that he signs as agent or in a
representative character, he is not personally liable on the bill. However the mere
addition of those words may not exempt him from personal liability.

c) Liability of acceptor (s.59 BEA)

By accepting, the acceptor becomes liable to pay the bill according to the tenor (or terms) of his
acceptance. He is also precluded from denying to a holder in due course:-

i. The existence of the drawer, the genuineness of his signature and his capacity and authority
to raw the bill;
ii. The capacity of the drawer to endorse the bill of the bill is payable to the drawer’s order;
and
iii. The existence of the payee and his capacity to endorse the bill, if the bill is payable to the
order of a third person (BEA,s59).

However the acceptor in (i) & (ii) above does not warrant the genuineness or validity of any
endorsement.

d) Liability of drawer or endorser (s.60 BEA)

If the bill is dishonored by non-acceptance or non-payment and provided the requisite proceedings
on dishonor are taken, the drawer is liable to compensate the holder or any endorser who is
compelled to pay (BEA,s60(1)(a)) this means that notwithstanding the primary liability of the
acceptor, a secondary liability is imposed on the drawer.

If a bill is dully presented but is dishonored by non-acceptance or non-payment, and provided the
requisite on proceedings on dishonor are taken, the endorser will be liable to compensate the holder
or a subsequent endorsee who is compelled to pay it (BEA,s60(2)(a)). He is precluded from
denying to a holder in due course the genuineness and regularity in all aspects of the drawer’s
signature and all previous endorsements.

e) Liability of a drawee
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A drawee who does not accept the bill is not liable thereon (BEA,s58). If he accepts the bill, he
becomes the acceptor.

f) Liability of the transferor by delivery

A holder who negotiated a bearer bill by delivery only and without endorsement is called a
transferor by delivery (BEA,s1)(1)). He incurs no liability on the bill, but he warrants to his
immediate transferee for value that the bill is what it purports to be, that he has a right to transfer for
value, he is not aware of any fact that makes it valueless (BEA,s60).

g) Liability of stranger (s.61 BEA)

As already pointed out, a signature is essential to liability on a bill. If a person signs a bill otherwise
than as a drawer or acceptor, he thereby incurs the liability of an endorser to a holder in due course
(BEA,s61).

h) Damages against parties to dishonored bill (s.62 BEA) - read s.62 which provides:

62. DAMAGES AGAINST PARTIES TO DISHONOURED BILL.

(1) Where a bill is dishonoured, damages may be recovered as follows:–

(a) the holder may recover from any party liable on the bill, the drawer who has been compelled to pay the bill
may recover from the acceptor, and an endorser who has been compelled to pay the bill may recover from the
acceptor or from the drawer, or from a prior endorser–
(i) the amount of the bill; and
(ii) interest on the bill from the time of presentation for payment if the bill is payable on demand, and from the
maturity of the bill in any other case; and
(iii) the expenses of noting, or, when protest is necessary and the protest has been extended, the expenses of
protest; and
(b) where a bill has been dishonoured abroad, in place of the damages specified in Paragraph (a) the holder
may recover from the drawer or an endorser, and the drawer or an endorser who has been compelled to pay the
bill may recover from any party liable to him, the amount of the re-exchange with interest until the time of
payment; and
(c) where by this Act interest may be recovered as damages–
(i) if justice requires it, the interest may be withheld wholly or in part; and
(ii) where a bill is expressed to be payable with interest at a given rate, interest as damages may or may not be
given at the same rate as interest proper.

(2) Damages referred to in Subsection (1) shall be deemed to be liquidated damages.

2 4 Lost bills

Where a bill is lost before overdue, the holder may apply the drawer for a duplicate bill, provided
that security if required is given to the drawer to indemnify him if the bill alleged to have been lost
is found. The drawer may be compelled to give a duplicate bill (BEA,s74).

2.5 Bill in a set

- Bills can be drawn in two or more sets, to avoid problems and delays encountered when the
sole copy of a bill is lost. In this case each part of the set are to be numbered and contained a
reference to other parts. The whole of the parts constitute one bill (BEA,s76(1)).

- If the drawee accepts more than one part and the accepted parts get into the hands of
different holders in due course, he will be liable on each part as if it were a separate bill
(BEA,s76(6)). Also if the acceptor pays the bill without requiring the accepted part to be
17 | P a g e
 produced and handed to him, and that accepted part is eventually presented by a holder in
due course, he is bound to pay against (BEA,s76(7)).

- Where the holder of a set endorses two or more parts to different persons he is liable on each
part and each subsequent endorsee is liable on the part that he has himself endorsed, as if the
parts were separate bills (BEA,s76(2)).

2.6 Conflict of laws

- A bill may be drawn in one country and negotiated, accepted or made payable in another
country, however systems of law of each country and relevant aspects of it govern such as
transactions (BEA,s77).

2.7 Discharge of a bill

A bill is discharged when all rights of action on it are extinguished. A bill is discharged when:-

a) Payment in due course

“Payment in due course” means payment by or on behalf of the drawer of the acceptor made at or
after the maturity of the bill to the holder in good faith and without notice that the holders’ title top
the bill if defective (BEA,ss1(1)&64(1)).

b) Acceptor becomes a holder

Where the acceptor of a bill is or becomes at or after its maturity, the holder in his own right the bill
if discharged (BEA,s66).

c) Renunciation of waiver

Where the holder of a bill is or becomes at or after maturity, absolutely and in-conditionally
renounces his right against the acceptor the bill is discharged. The renunciation must be in writing
unless the bill is delivered up to the acceptor (BEA, s67).

d) Cancellation

A bill is discharged if it is intentionally cancelled by the holder of his agent, and the cancellation is
apparent on the bill (BEA,s68(1)). However the mere cancellation of a signature of a party liability
on the bill dos not amount to a discharge of the bill, it may constitute a discharge of that party as
well as of any endorser who would have had a right of recourse against him (BEA,s68(2)).

e) Material alteration

If a bill or acceptance therefor is materially altered (includes any alteration of the due date, the sum
payable, the time of payment, the place of payment and where a bill has been accepted generally,
the additional of a place of payment without the acceptor’s acceptance) without the assents of all
parties liable on the bill, the bill is avoided, except as against a party who has himself made,
authorized is not apparent the holder in due course may enforce payment of the bill according to its
original tenor and also in its altered state (BEA,s69(2)).

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3. Cheques
A cheque is defined as a bill drawn on a banker (bank) and payable on demand (BEA,s1(1)). Its is
and foremost a bill of exchange and the provisions of the BEA applicable to bills payable on
demand also apply to cheques, except as otherwise provided (BEA,s79).

Difference between cheques and other bills:-

(a) Acceptance

- The rules relating to acceptance do not apply to cheques. The banker as drawee must honour
the cheques if it appears to be in order and is received in the ordinary course of business,
and the drawer’s account is in credit or if the drawer is granted and overdraft facility.

- The holder of a cheque has no right to sue banker who refuse to pay cheque since there is
no privacy between the banker and the holder.

(b) Crossings

The rules relating to crossing are restricted to cheques, they do not apply to other bills.

(c) Delay in presentment for payment

A delay in presenting a cheque for payment does not discharge the drawer. However if a cheque is
not presented for payment within a reasonable time and the drawer suffers actual damage through
the delay (as where the banker on whom the cheque was drawn becomes insolvent), he is
discharged to the extent of the damage (BEA,s80). On the other hand a drawer of a bill that is not a
cheque is discharged if the bill is not duly presented for payment (BEA,s50(2)).

(d) Forged and unauthorized endorsements

A banker who pays an order cheque bearing a forged or unauthorized endorsement is not liable to
the true owner as long as the banker pays the cheque in good faith and in the ordinary course of
business (BEA,s65). On the other hand an acceptor of a bill other than a cheque who pays on a
forged or unauthorized signature will still be liable to the true owner (BEA,s529).

(e) Drawee must be a banker

A cheque must be drawn on a banker and must be payable on demand. A banker is defined to
include a body of persons, whether incorporated or not, who carry on the business of banking. Any
other bill can be drawn on any person or entity and may be payable on demand or at fixed or
determinable future time.

3.1 Banker-customer relationship

- When a person opens an account with a banker and deposits money into that account, a
contractual relationship of debtor and creditor is established between the banker and that
person, the customer. The customer is said to have lent that money to the banker. The
customer is creditor whilst the banker is debtor. However, the ordinary rule that a debtor
must seek a creditor and pay him does not apply in this case. The debtor’s obligation to
repay does not arise until the creditor has made a demand (i.e. has drawn and presented a
cheque) for payment upon him.

19 | P a g e
 - Money deposited becomes the banker’s money. He deals with it as his own money and if he
makes a profit out of he is entitle to retain it. The banker’s obligation is to promptly repay
the customer’s money to the customer or as directed by him when legally demanded.

- A customer may be accorded an overdraft facility, meaning that he can overdraw his
account up to a stated limit. When that happens, he becomes the debtor and the banker is the
creditor.

3.2 Duties of the customer

- A customer has a duty to take reasonable care in drawing his cheques so as to guard against
unauthorized alterations and/or prevent forgeries.

- A customer also has a duty not to hinder or delay the banker in performing the banker’s
obligations or duties. In particularly the customer’s order must be clear and unambiguous.

-
3.3 Duties of the banker

a. General Duty of care

A banker owes a contractual duty to take reasonable care in its conduct of the customer’s business.
For example if it has been held that if the customer is a registered company, the banker will be
liable to the customer for honouring cheques drawn by the directors of the company for
unauthorized purposes, if the banker knows or ought to know that such is the case.

b. Duty to honour customer’s cheques

- A banker has a duty to honour (i.e. pay) cheques drawn on the banker by the customer up to
the amount of the customer’s credit balance in his account or up to the amount of the agreed
or authorized overdraft limit, if any. However, the duty is concomitant with the cheques
ppearing regular on their faces and being presented to the banker in the ordinary course of
business.

- A banker who refuses to honour his customer’s cheque is liable to be sued by the customer
for damages for breach of contract. If the customer is a trader (business person), he will be
entitled to substantial damages without proof of actual loss (Fleming v Bank of New Zealand
(1900) AC 577). A private or non-business customer will only receive nominal damages
unless actual loss is pleaded and proved.

- The duty and authority of a banker to pay his customer’s cheques are determined (i.e.
brought to an end) by countermand of payment (means to stop payment) or notice of the
customer’s death (BEA,s82)

- A banker is also entitled to refuse payment of the customer’s cheque if:-

i. The cheque is not fully covered by the customer’s credit balance or agreed overdraft
limit;
ii. The cheque is drawn against un-cleared items (e.g. cheques banked for collection);
iii. The cheque appears to be irregular as where it is post-dated or contained an material
alteration that does bear the drawer’s signature or initials or where the words and
figures differ;
iv. The banker has notice of the customer’s insanity;

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 v. The banker has notice of the customer’s insolvency. When the customer is declared
insolvent, the banker is required to pay to the trustee in insolvency all monies
outstanding in the customer’s account (Insolvency Act, c253, s82);
vi. A garnishee order is served on the banker;
vii. The cheque is stale, i.e. it appears on its face to have been in circulation for more
than twelve months (BEA,s81)

(c) Duty not to pay without authority

- Payment out of the customer’s account must be made only on the customer’s signature and
only according to his directions. If a banker pays an effectively countermanded cheque, a
cheque which is void on account of a material alteration or one on which the customer’s
signature has been forged, he will be in breach of the duty not to pay without the customer’s
authority. In any such case, the banker prima facie has no right to debit the customer’s
account with the amount of the cheque. However there are exceptions to this rule:-

i. Firstly if as a result to the customer’s breach of duty to draw his cheques with reasonable
care so as to guard against unauthorized alterations and prevent forgeries the banker
pays a cheque without authority, the customer will bear the loss resulting from his
negligence (London Joint Stock Bank v. MacMillan & Arthur (1918)AC 777);
ii. Secondly if a customer discovers that his signature to a cheque has been forged, he is
under a duty to notify his banker promptly. If he failed to do so and the banker is thereby
prejudiced he will bear the resultant loss.
iii. Thirdly, if a banker on whom a crossed cheque is drawn in good faith and without
negligence pays it in conformity with the crossing, then the banker is placed in the same
position as if he pays it in conformity with the crossing, then the banker is placed in the
same position as if he had paid the true owner therefor. Also if the cheque had come into
the hands of the payee, the drawer is afforded the same protection (BEA,s87). This
means for example that if a crossed order cheque is stolen from the payee and the thief
forges the payee’s endorsement, the paying banker will be entitled to debit the drawer’s
account with the amount of the cheque as long as the banker pays the cheque according
to the crossing in the good faith and without negligence. The drawer will also be
discharged from liability to the payee.
iv. Fourthly, a banker who pays an order cheque bearing a forged or unauthorized
endorsement is not liable to the true owner as long as the banker pays the cheque in good
faith and in ordinary course of business (BEA,s65). This applies to both crossed and un-
crossed cheques.
v. Finally, if a banker (A) in a good faith and in the course of ordinary business pays to
another banker (B) a cheque drawn on banker (A) which is not endorsed, is irregularly
endorsed or has been endorsed without authority, banker A does not thereby incur
liability by reason only of the absence of endorsement or an irregularity in the
endorsement of his failure to concern himself with the existence of authority of
endorsement. Banker (A) is deem to have paid the cheque in good faith (BEA,s89).

- At common law, if a banker collects a cheque for a customer who has no title to the cheque,
the banker is liable in conversion to the true owner of the cheque.
- BEA,s91 affords some protection to the collecting banker, if the banker collects the cheque
for a “customer” (NB: a person for whom a banker performs a casual service such as
cashing a cheque is not a customer). In addition a collecting banker will only be protected if
he acted without negligence in collecting the particular cheque. The burden of proving
negligence lies on the banker (Lloyed’s Bank v Savory & Co (1933) AC 201; Midland Bank
v Reckitt (1933) AC1)

(d) Duty of secrecy

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The banker-customer relationship is a confidential one. A duty is therefore imposed on a banker not
to divulge the state of the customer’s account, the customer’s transactions, and any information
relating to the customer’s account, even after closing of the account. However a banker will not be
in breach of the duty of secrecy and disclosure of a client’s affairs will be justifies if:-

i. Made under compulsion of law as where a banker is under a duty to give evidence relating
to the customer’s affairs in a court of law or before a judicial commission;
ii. Required in the public interest, as where during war time, a customer is suspected of trading
with the enemy;
iii. Required to protect the banker’s own interest, as where a banker sues on an overdraft
(Tournier v National Provincial and Union Bank of England (1924) 1 KB 461) and
iv. Made with the customer’s express or implied consent as where the customer gives the
banker’s name as a referee.

3.4 Crossing of cheques

A cheque may be open (uncrossed) or crossed. Further a cheque may be crossed generally or
specially.

a. General crossing

A general crossing consists of two parallel transverse lines across the face of a cheque with or
without the words “bank” or “and” company” (or any abbreviation therefor) as follows (BEA,
s83(2)).
The effect of a general crossing is that the paying banker must pay the cheque to another banker,
and not across the counter. This affords some protection to the holder in case of theft of the cheque.

b. Special crossing

Where a cheque bears across its face an addition of the name of a banker that addition constitutes a
special crossing to that banker (BEA, s83(3)). The two transverse lines need not be added, although
they usually are.
A special crossing is an instruction to the paying banker that the cheque must be paid to the banker
in the crossing.

c. “Not negotiable” crossing

The words “not negotiable” may be and often are added to both general and special crossings
(BEA, s83 (2) & (3)). Such words do not affect the transferability of the cheque but limit its
character as a negotiable instrument. The transferee cannot acquire and is not capable of giving a
better title to the cheque than that of the person from whom he took it (BEA, s88).

d. “Account payee” crossing

A cheque crossed “account payee” is freely negotiable. The words are not directed to the paying
banker, but are an instrument to the collecting banker (i.e. the banker holding an account for the
payee) to collect only for the payee’s account. The words “account payee” or “account payee only”
refer to the payee named in the cheque and not the holder at the time of presentation.

e. Crossing is part of the cheque

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A crossing authorized by the BEA is a material part of the cheque and no person may obliterate or
except as authorization by the BEA, add to or alter a crossing (BEA,s85). However the BEA itself
allows a crossing to be altered as follows:-

- (a) where a cheque is crossed generally the holder may cross it specifically;
- (b) where a cheque is crossed generally or specially the holder may add the words “not
negotiable” ;
- (c) where a cheque is crossed specially the banker to whom it is crossed may again cross it
specially to another banker for collection; and
- (d) Where a cheque crossed generally is sent to a banker for collection he may cross it
specially to himself (BEA, s84).

Also where a cheque is uncrossed, the holder may cross it generally or specially (BEA, s84 (2)).

f. Duties of a banker in relation to crossed cheques

A banker has a duty to pay the customer’s cheques in accordance with the later’s instructions. This
means that a crossed cheque must be paid in accordance with the crossing. If a cheque is specially
crossed to more than one banker, the paying banker must refuse payment, except where one of the
banker is the collecting agent of the other.

4. Promissory Notes
- A promissory note is defined as a “written unconditional promise made by one person to
another, signed by the maker, engaging to pay, on demand or at a fixed determinable future
time, a sum certain in money, to or to order of a specified person, or to bearer”
(BEA,s93(1)).

- A promissory note has two original parties: the person giving the promise (the maker) and
the person to whom the promise is made (the payee). If the same maker and payee is the
same person, then it is not promissory note.

- A promissory note may be made by two or more makers whose liability may be joint, or
joint and several depending on its tenor (BEA, s95 (1)).

- A promissory note is incomplete until it is delivered to the payee or bearer (BEA, s94). Only
then is the promissory note negotiable.

4.1 Liability of the maker

By making a promissory note, the maker engages that he will pay it according to its tenor, and is
precluded from denying to a holder in due course the existence of the payee, or his then capacity to
endorse (BEA, s98).

4.2 Note payable on demand

Where a promissory note payable on demand has been endorsed it must be presented for payment
within a reasonable time after endorsement, otherwise the endorser is discharged (BEA, s96;
Glasscock v Balls (1890) 24 QBD 13).

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4.3 Presentment of payment

Where a promissory note is “in the body of it” (requires the particular place of payment to be part of
the actual terms of the promise, e.g. I promise to pay John Kila) made payable “at a particular
place” in order to render the maker liable. In no other case is presentment for payment necessary to
make the endorser of a promissory note liable (BEA, s97 (1) & (2)).However presentment for
payment is necessary to make the endorser of a promissory note liable (BEA, s97 (3) & (4)).

4.4 Application of law of bill exchange to promissory notes

The basic difference between a bill of exchange and a promissory note is that the former is an order
to pay while the latter is a promise to pay. Also a bill has three original parties while a note has two.
However, both are negotiable instruments, and are similar in several respects – unconditional, in
writing, signed to pay on demand or at a fixed or determinable future time, sum certain in money, to
or to the order of a specified person or bearer.

However, the provision of BEA relating to, the presentation of bills for acceptance, the acceptance
of bills, the acceptance of bills supra protest, and bills in a set do not apply to promissory notes
(BEA, s99 (3). Also where a foreign promissory note is dishonoured, the protest therefor is
unnecessary (BEA, s99 (4)).

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