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THE ADVOCATES TRAINING
PROGRAMME
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COMMERCIAL TRANSACTIONS
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NEGOTIABLE INSTRUMENTS
(PART ONE)
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by
Rautta-Athiambo
Introduction
Introduction contd.
Introduction contd.
NEGOTIABLE INSTRUMENTS
Definitioncontd.
Definitioncontd.
Taken together the two words denote a writing or
record that can be exchanged or transferred as or
for money.
Under the law, a negotiable instrument is, basically, a
document which promises the payment of a fixed
amount of money and which may be transferred from
one person to another person.
Thus the term negotiable instrument literally refers to
a document containing rights that can be transferred by
delivery.
In the United States, Articles 3 and Article 4 of the
Uniform Commercial Code, 1952, (UCC) govern the
issuance and transfer of negotiable instruments.
Negotiable Instruments in Kenya by RauttaAthiambo [2014]
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Bills of exchange;
Cheques; and
Promissory notes.
These are by no means the only negotiable
instruments.
Others have been created over the years by
mercantile usage or custom.
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treasury bills,
bankers drafts,
bearer securities, etc
bank notes,
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SOURCES OF LAW
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BEA
The BEA largely is a copy work of the English statute
of 1882, which largely codified the then existing caselaw, which in turn had developed from comprehensive
rules created by merchants earlier.
It provided, and continues to provide, a code for the
creation of bills and cheques.
It came into effect here on 14.05. 1927.
BEA applies to bills, cheques and promissory notes.
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BILLS OF EXCHANGE
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Kshs. 100,000/=
ON DEMAND [(or) AT SIGHT (or) ON PRESENTATION]
PAY to NIT NDEKLE (payee) or order [(or) (payee) or bearer
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Stamping
A bill or note must be drawn on a stamped paper, and
the stamp must be an impressed stamp: see s. 23, Stamp
Duty Act and Eric Jean Daniel Stolz v. Mohammed Hussein
Abdulla Jaffer, Civil Cause No 26 of 2004.
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1. Name of drawer
2. Address of drawer
3. Signature of drawer
4. Amount certain
5. Instructions (e.g. Pay on demand or after 30 days etc.)
6. Name of Payee
7. Name of drawee
8. Address of drawee
9. Date
10. Stamp Duty
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FORM OF CHEQUE
Date 28th June, 2014
KALOT BANK LIMITED <Stamp duty>
Sombro Road,
KALOT
(Drawee & Address)
Kshs. 50,000/=
(Sum certain in figs)
Pay MINO DUGU (Payee)
Kenya Shillings.. FIFTY THOUSAND only.(Sum in words)
.
Nit Ndekle
Cheque Number
(Drawer)
Bank Code Account Number
..
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NEGOTIATION
When a bill of exchange, or cheque or promissory note is
transferred to any person, so as to constitute that
person the holder thereof, the instrument is said to be
negotiated.
There are two methods of negotiation: 1. Negotiation by delivery
If an instrument is payable to bearer, it is
negotiable by delivery thereof.
2. Negotiation by endorsement and delivery
If an instrument is payable to order, it is
negotiable by the holder by endorsement and
delivery thereof.
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Negotiationcontd.
Endorsement
It means writing or signing of a persons name on the
back of an instrument for the purpose of negotiation.
The person who endorses the instrument is called the
endorser and the person to whom it is endorsed is
called the endorsee.
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Negotiationcontd.
Delivery
This refers to the actual handing over of the document
(negotiable instrument) by way of transfer of
possession, actual or constructive, from one person to
another.
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Negotiationcontd.
In each case, the transferee must take the instrument-for value,
-in good faith, and
-without notice of conflicting claims or defences, if
any: cf. s. 29, BEA.
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Rights of holder
A simple holder may enforce the bill against(i) against any person who has signed it; and
(ii) against the transferor from whom he got it,
whether or not the transferor signed the bill.
To acquire full rights in respect of a bill, the holder
must give value for it by himself or should have
obtained it from a person who gave value for it.
By law, there is a presumption (rebuttable by defendant
in action by the holder) that possession of a bill by the
holder is supported by valuable consideration.
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CAPACITY OF PARTIES
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(d) Agent
An agent who signs a negotiable instrument for his
principal may bind his principal provided(1) he signs the principals name or states on the
face of the instrument that he signs as agent, and
(2) he acts within the scope of his authority.
An agent may also sign by procuration, a notice that he
has but a limited authority to do so: see e.g. s. 25,
BEA.
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(e) Partner
In a trading firm each partner has implied authority to
bind his co-partners by drawing, endorsing, accepting
or negotiating bills, notes and cheques.
By s. 7, Partnership Act, Cap. 29, every partner is an
agent of the firm and his other partners for the purpose
of the business of the partnership.
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The act done by the partner in question must- be done in relation to the partnership business;
- be an act for carrying on business in the usual
way; and
- be an act done as a partner, and not as an
individual.
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Transfer of a billcontd.
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Transfer of a billcontd.
A bill is payable to order when(a) it is expressed to be so payable, e.g. Pay Nit Ndekle
or order ; or
(b) expressed to be payable to a particular person,
and does not contain words prohibiting transfer or
indicating an intention that it should not be
transferable, e.g. Pay Nit Ndekle: s. 8(4); or
(c) the bill originally endorsed in blank is converted to a
special endorsement, i.e. specifies the person to whom
or to whose order it is payable: s. 34(4).
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Transfer of a billcontd.
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Transfer of a billcontd.
Endorsement
Endorsement, in commercial law, ordinarily means
signing the back of a document to transfer ownership
of the rights in that document to a specified payee.
It is defined in the BEA as an endorsement completed
by delivery: s.2.
To operate as a negotiation, an endorsement must,
among others, be written on the bill itself, and be an
endorsement of the entire bill: s. 32.
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Transfer of a billcontd.
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Transfer of a billcontd.
Delivery
In the English language, delivery means, among others,
the act of giving or transferring or the state of being
transferred or given.
In the BEA, it is defined as transfer of possession,
actual or constructive from one person to another: s. 2
Actual delivery is one which exists in reality
Constructive delivery is effected by mere intention,
e.g. where drawer completes a cheque and notifies
payee while holding it on payees behalf, the cheque is
deemed issued.
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Transfer of a billcontd.
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Transfer of a billcontd.
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Transfer of a billcontd.
NB:
All negotiable instruments are transferable.
But not all transferable instruments are negotiable.
These basic rules of transfer apply generally to all bills,
including cheques and promissory notes, with
appropriate variations.
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MATERIAL ALTERATION
By section 64, BEA, where a bill is materially altered
without the assent of all parties liable on it, the bill is
void except as against(a) a party who has himself made, authorized or
assented to the alteration, and
(b) subsequent endorser provided alteration is not
apparent, or
(c ) a holder in due course, where the alteration is
not apparent .
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Examples, s.64(2):
An alteration is material when a bill is altered as to or
with respect to- the date,
- the sum payable, in word or figures,
-the time of payment;
-the place of payment; and
- the addition of place of payment, without
acceptors consent, where the bill has been
accepted generally.
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Nairobi,
October, 2014.
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