NEGOTIABLE INSTRUMENTS

 Bills of Exchange Act, 1961 (Act 55).

 Contracts in writing transferable by endorsement or by delivery
 Holder takes title free from any defences or objections to their validity
 Promises to pay money and Orders to pay money.
 Promises to pay money - Promissory notes and certificates of deposit.
 Orders to pay money - Bills of exchange like Cheques and other drafts.

PROMISSORY NOTES
 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.

CERTIFICATES OF DEPOSIT
 Treasury bill
 A banker acknowledges the receipt of a deposit from the depositor and
 promises to repay the deposited sum to the depositor on demand.

BILL OF EXCHANGE
 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.

CHEQUE
 A Cheque is a bill of exchange drawn on a banker payable on demand

General Crossing
 cheque bears across its face an addition of the words "and company" or any abbreviation
thereof between two parallel transverse lines, either with or without the words "not
negotiable";
Special Crossing
 cheque bears across its face an addition of the name of a banker, either with or without
the words "not negotiable,"

DRAFT
 A written order for the payment of money drawn by one person,
 directing a second person or financial institution to pay a third person.
DELIVERY

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  Every contract on a bill is incomplete and revocable, until delivery of the instrument in
order to give effect to it.
 Where an acceptance is written on a bill, and the drawee gives notice to or according to
the directions of the person entitled to the bill that he has accepted it, the acceptance then
becomes complete and irrevocable.

NEGOTIABILITY
 Capability of being transferred.
 Transferability.
Attributes for negotiability
 Be in writing.
 Be signed.
 Must contain a promise to pay
 The promise or order must be unconditional.
 The instrument must call for payment of a fixed amount of money.
 The instrument must be payable on demand or at a definite time.
 An instrument generally must be payable to bearer or to order.

ENDORSEMENT
 Must be written on the bill itself and signed by the endorser
 must be an endorsement of the entire bill and
 where payable to the order of two or more payees or endorsees who are not partners all
must endorse.
 An endorsement may be special, blank, restrictive or conditional.
 A special endorsement specifies the person to whom or to whose order the bill is payable.
 An endorsement in blank specifies no endorsee and a bill so endorsed becomes payable to
bearer.
 A restrictive endorsement prohibits the further negotiation of the bill or expresses that it
is a mere authority to deal with the bill as directed and not a transfer of property.
 Conditional Endorsement - Where a bill purports to be endorsed conditionally the
condition may be disregarded by the payer, and payment to the endorsee is valid

HOLDERS
 A payee in possession, or an endorsee in possession or a person in possession of a bearer
bill.
A holder for value
 a person in possession of a bill for which at any time value has been given.
 He is a holder for value as regards all parties prior to himself.
A holder in due course
 a holder who is in possession of the instrument complete and regular on the face of it
before it was overdue for value and in good faith without notice of any defect in the title
of his transferor and if it has been dishonoured then without notice of dishonour.
 The rights and powers of the holder of a bill include suing on the bill in his own name.
 The holder in due course as a transferee generally takes free of claims and defences
between the original parties to the instrument and may enforce payment against all parties
liable on the bill.

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  Claims relating to ownership, lien on the instrument or right of rescission of endorsement
can be sustained against the holder in due course if they arise subsequent to taking but not
claims arising before taking.
 Every holder of a bill was to be deemed to be a holder in due course, unless evidence was
given to show fraud, duress, or force and fear or illegality in the negotiation of the bill.

DISHONOUR
 A bill may be dishonoured by non-acceptance or by non- payment
 the holder can sue prior parties on their implied promises.
 A bill is dishonoured by non-acceptance when it is duly presented for acceptance and
such acceptance is refused or cannot be obtained
 A bill is dishonoured by non-payment when it is duly presented for payment and payment
is refused or cannot be obtained
 When a bill has been dishonoured by non-acceptance or by non-payment, notice of
dishonour must be given to the drawer and each endorser, and any drawer or endorser to
whom such notice is not given is discharged.

DISCHARGE
 Payment in due course means payment made at or after the maturity of the bill to the
holder thereof in good faith and without notice that his title to the bill is defective.
 By express waiver where the holder absolutely and unconditionally renounces his rights
against the acceptor.
 Any material alteration discharges any party whose obligation is affected by the
alteration.
 By intentional and apparent cancellation by the holder or his agent.
 By negotiation back to the acceptor sometimes called a merger.
 By the bill becoming statute barred.

RELATIONSHIP OF BANKER AND CUSTOMER

 Banker’s obligation to repay.
 The bank must honour a customer’s deposit or alternatively up to the amount of an
agreed overdraft but not without enquiry in unusual cases.
 Banker’s obligation not to disclose.
 The customer has the duty to bring to the notice of the bank any forged or lost cheques

TERMINATION OF DUTY TO PAY

 Upon a countermand
 Notice of the customer’s death.
 Notice of the customer’s mental disorder.
 Notice of bankruptcy or receiving order.
 Service of a garnishee order.
 Forged and altered cheques.
NEGOTIABLE INSTRUMENTS
 Negotiable Instruments are regulated by the Bills of Exchange Act, 1961 (Act 55).

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  Negotiable Instruments are contracts in writing that are transferable by endorsement or by
delivery and to which the holder takes title free from any defences or objections to their
validity that might have been good against the transferor.
 They are sometimes called Commercial Paper. They are substitutes for money.
 There are two types namely Promises to pay money and Orders to pay money.
 Promises to pay money include Promissory notes and certificates of deposit.
 Examples of Orders to pay money are Bills of exchange like Cheques and other drafts.

PROMISSORY NOTES
 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.
 The note may be made payable to the bearer, to a party named in the note, or to the order
of the party named in the note.
 Typically, a promissory note will contain all issues to the indebtedness such as the
principal amount, the interest rates, maturity dates, issuers details including signature and
date and place of issuance.
 Promissory notes are sometimes treated as ‘letter of comfort’ and seem to lie between an
IOU and the rigid rules guarding a loan contract.
 Promissory notes are normally held by the party which is owed the money and once the
debt discharged the note is cancelled by the payee and returned to the issuer.
 A promissory note differs from an IOU in that the former is a promise to pay and the
latter is a mere acknowledgment of a debt.
 A promissory note is negotiable by endorsement if it is specifically made payable to the
order of a person.
 A promissory note must contain an undertaking to pay.
 In the case of Government Promissory notes, it is the Government which promises in
writing to pay a predetermined sum of money to a mentioned specific person on a
specific date or on demand.
 Any financial instrument that has a written promise by one party (the note issuer-like the
government) to pay another (the payee) at a future known date can be termed a
promissory note.

CERTIFICATES OF DEPOSIT
 By a certificate of deposit (treasury bill), a banker acknowledges the receipt of a deposit
from the depositor and promises to repay the deposited sum to the depositor on demand.

BILL OF EXCHANGE
 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.
 The payee is frequently the same person as the drawer of the bill.
 On accepting a bill of exchange, the drawee becomes the party primarily responsible for
paying it.

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  Bills of exchange are negotiable and are one of the principal forms of commercial
documents.
 The most common bill of exchange is the cheque.

CHEQUE
 A Cheque is a bill of exchange drawn on banker payable on demand
 The issuer of the cheque is the drawer who orders the bank at which he has an account
referred to as the drawee to pay a named individual or entity or the bearer of the cheque,
the payee a specified sum of money upon presentation of the cheque.
 A cheque includes a money order.
General and Special Crossing Defined
 Where a cheque bears across its face an addition of the words "and company" or any
abbreviation thereof between two parallel transverse lines, either with or without the
words "not negotiable"; "that addition constitutes a crossing, and the cheque is crossed
generally.
 Where a cheque bears across its face an addition of the name of a banker, either with or
without the words "not negotiable," that addition constitutes a crossing, and the cheque is
crossed specially, and to that banker.

DRAFT
 A Draft is a written order for the payment of money drawn by one person, directing a
second person or financial institution to pay a third person.
 Whereas bills of exchange are always negotiable, drafts may be non-negotiable.
 A draft is payable on sight or on demand; however, in some transactions drafts are often
payable at a stated date in the future.

DELIVERY
 Every contract on a bill, whether it be the drawer's, the acceptor's, or an endorser's, is
incomplete and revocable, until delivery of the instrument in order to give effect to it.
 Provided that where an acceptance is written on a bill, and the drawee gives notice to or
according to the directions of the person entitled to the bill that he has accepted it, the
acceptance then becomes complete and irrevocable.
 As between immediate parties, and as regards a remote party other than a holder in due
course, the delivery in order to be effectual must be made either by or under the authority
of the party drawing, accepting, or endorsing, as the case may be;

NEGOTIABILITY
 The negotiability of an instrument is its capability of being transferred.
 It is also known as its transferability.
For an instrument to be negotiable, it must have the following attributes:
 Be in writing. An instrument that is hand-written, typed, or printed is considered to be in
writing.
 It must be signed. It must be signed by the person undertaking to pay, that is (the maker)
or (the drawer). An instrument has been signed if the maker or drawer has put a name or
other symbol on it with the intention of validating it. Normally it is done by writing a
name on it. A person or company may authorize an agent to sign instruments for it.

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  It must contain a promise to pay or it cannot be negotiable. Merely acknowledging a debt
is not sufficient. A simple request to pay as a favour is also not sufficient; however, a
politely phrased demand such as “please pay” can meet the requirements. Cheques
commonly use the language “pay to the order of” which thus satisfies the requirement
that the cheque contains an order to pay.
 The promise or order must be unconditional. Thus a note that provides, “I promise to pay
to the order of Yaw John GH¢100 if he builds any house” is not negotiable.
 The instrument must call for payment of a fixed amount of money. The principal sum
must be ascertainable from the face of the instrument. It may however contain a clause
providing for payment of interest or other charges.
 The order for payment must be payable in money.
 The instrument must be payable on demand or at a definite time. A promise or order is
payable on demand if:
 it states that it is payable on demand or sight, or
 does not state any time for payment but may be post-dated or ante dated.
 A promise or order is payable at a definite time if it is payable at a fixed date or at a time
or times readily ascertainable at the time the promise or order is issued.
 An instrument generally must be payable to bearer or to order.
 The words “to order of” or “to bearer” show that the drawer of the draft or the maker of
the note intends to issue a negotiable instrument.
 The drawer is therefore not restricting payment of the instrument to just the person to
whose order it is made but is willing to pay someone else designated by him.
 An instrument may not state any other undertaking or instruction by the person
promising or order any payment to do any act in addition to the payment of money.

ENDORSEMENT
 A valid endorsement must be written on the bill itself and signed by the endorser, it must
be an endorsement of the entire bill and where it is payable to the order of two or more
payees or endorsees who are not partners all must endorse.
 An endorsement may be special, blank, restrictive or conditional.
 A special endorsement specifies the person to whom or to whose order the bill is to be
payable.
 An endorsement in blank specifies no endorsee and a bill so endorsed becomes payable to
bearer. Any holder may convert the blank endorsement 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.
 A restrictive endorsement prohibits the further negotiation of the bill or expresses that it
is a mere authority to deal with the bill as directed and not a transfer of property. The
endorsement may be “for deposit only”, “pay to Kojo, in trust for Maame”.
 Conditional Endorsement - Where a bill purports to be endorsed conditionally the
condition may be disregarded by the payer, and payment to the endorsee is valid whether
the condition has been fulfilled or not.

HOLDERS
 A person is a holder if he is either a payee in possession, or an endorsee in possession or
a person in possession of a bearer bill.

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  A holder for value is a person in possession of a bill for which at any time value has been
given.
 He is a holder for value as regards all parties prior to himself.
 A holder in due course is a holder who is in possession of the instrument complete and
regular on the face of it before it was overdue for value and in good faith without notice
of any defect in the title of his transferor and if it has been dishonoured then without
notice of dishonour.
 The rights and powers of the holder of a bill include suing on the bill in his own name.
 The holder in due course as a transferee generally takes free of claims and defences
between the original parties to the instrument and may enforce payment against all parties
liable on the bill.
 Claims relating to ownership, lien on the instrument or right of rescission of endorsement
can be sustained against the holder in due course if they arise subsequent to taking but not
claims arising before taking.
 Every party whose signature appears on a bill is prima facie deemed to have become a
party thereto for value.
 Every holder of a bill is prima facie deemed to be a holder in due course.
 The effect of s 28 (2) of Act 55 is that every holder of a bill was to be deemed to be a
holder in due course, unless evidence was given to show that there was fraud, duress, or
force and fear or illegality in the negotiation of the bill.

DISHONOUR
 A bill may be dishonoured by non-acceptance or by non- payment and the holder can sue
prior parties on their implied promises.
 A bill is dishonoured by non-acceptance when it is duly presented for acceptance and
such acceptance is refused or cannot be obtained or when presentment for acceptance is
excused and the bill is not accepted.
 A bill is dishonoured by non-payment when it is duly presented for payment and payment
is refused or cannot be obtained and when presentment is excused and the bill is overdue
and unpaid.
 When a bill has been dishonoured by non-acceptance or by non-payment, notice of
dishonour must be given to the drawer and each endorser, and any drawer or endorser to
whom such notice is not given is discharged.

DISCHARGE
 A bill is discharged by payment in due course by or on behalf of the drawee or acceptor.
 Payment in due course means payment made at or after the maturity of the bill to the
holder thereof in good faith and without notice that his title to the bill is defective.
 Payment of the instrument in full discharges liability on it.
 By express waiver where the holder absolutely and unconditionally renounces his rights
against the acceptor.
 The waiver must be in writing unless the bill is delivered up to the acceptor.
 Any material alteration discharges any party whose obligation is affected by the
alteration.
 By intentional and apparent cancellation by the holder or his agent.
 By negotiation back to the acceptor sometimes called a merger.

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  By the bill becoming statute barred.

RELATIONSHIP OF BANKER AND CUSTOMER

 A person becomes a customer either when the banker opens an account in his name or
when the banker accepts his instruction to open an account and receives a deposit to be
credited to it.
 When the banker accepts the custody of documents or goods he acts a bailee.
 When he agrees to hold moneys on trust he becomes a trustee.
 When a banker opens an account for the customer the relationship established is that of
debtor and creditor.
 When the account is in credit the customer is the creditor and the banker the debtor.
 The position is reversed when the account is overdrawn. Customer’s deposit of money in
a bank under the banker’s control but not held in the form of a trust although he has
obligations in connection with it.
 Banker’s obligation to repay. A Banker can invest the money as he pleases but is under
an obligation to pay it on demand or to pay it to third parties on the order of the customer.
 The bank must honour a customer’s deposit or alternatively up to the amount of an
agreed overdraft but not without enquiry in unusual cases.
 Banker’s obligation not to disclose. The bank has an obligation not to disclose
information concerning the customer’s affairs.
 On principle disclosure is excusable under compulsion of law, where there is a duty to the
public to disclose, where the interests of the bank require disclosure or where the
disclosure is made with the express or implied consent of the customer.
 The customer has the duty to bring to the notice of the bank any lost cheques, forged or
altered cheques, not to overdraw his account without the consent of the bank and
generally not to do fraudulent acts which may bring liability to the bank

TERMINATION OF DUTY TO PAY

 The banker should not honour a cheque if the customer has countermanded or stopped it.
This is a notice to the bank not to pay.
 Notice of the customer’s death. The death of a customer revokes his mandate to the bank.
On receiving notice of the customer’s death, payment will be made to his or her personal
representatives only on the authority of Probate or Letters of Administration.
 Notice of the customer’s mental disorder. Mental incapacity amounts to a revocation of
mandate. The bank can deal with an appointed Receiver.
 Notice of bankruptcy or receiving order. Where the bank has no notice of a receiving
order in bankruptcy it is protected. The duty to terminate arises after the receipt of such
notice.
 Service of a garnishee order. The service of a garnishee order stays the hand of the bank
from effecting payment out of the customer’s account. Payments will be effected from it
to the creditor on a court order to the bank obtained by the creditor.
 Forged and altered cheques. Forged and altered cheques are obviously not genuine and
cannot be honoured.
 The bank has an obligation to act with reasonable care and skill to ensure that there is no
improper withdrawal of money from the customer’s account.

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 Bankers give advice on investment to customers and potential customers and will be
liable in damages if the advice is negligent.