NEGOTIABLE INSTRUMENTS

Structure of Presentation
• GENERAL INTRODUCTION
• GENERAL DEFINITION OF NEGOTIABLE INSTRUMENT
• MEANING OF TERMS
• PAYMENT METHODS
• NATURE OF NEGOTIABLE INSTRUMENT
• ORIGIN OF NEGOTIABLE INSTRUMENT
• DEFINITION OF BOE
• FORM OF BOE
• NEGOTIABLE INSTRUMENT UNDER GHANA LAW
• CLASSES OF NEGOTIABLE INSTRUMENT
• DEFINITION OF KEY TERMS
• PROMISE TO PAY
• ORDER TO PAY
• DETAIL DISCUSSION OF NEGOTIABLE INSTRUMENTS UNDER GHANA LAW
• LEGAL EFFECT OF DRAWING A BILL
• NEGOTIATING A BILL
• ORDER BILL, BEARER BILL
• HOLDER, HOLDER FOR VALUE, HOLDER IN DUE COURSE
• PROMISORY NOTES 2
 GENERAL
INTRODUCTION

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General Definition of Negotiable
Instrument
According to investopedia, “A
negotiable instrument is a written order or
unconditional promise to pay a fixed sum
of money on demand or at a certain time.
A negotiable instrument can be
transferred from one person to another.
Once the instrument is transferred, the
holder obtains full legal title to the
instrument.”
MEANING OF TERMS
(A.) Instrument: According to R.M. Goode, Commercial
Law, 3rd ed., 2004, p. 476, an instrument is “… a
document of title to money (rather than goods).”

• LS Sealy & RJA Hooley, Commercial Law (T, C & M), 4th
ed., 2004, p. 516 also defines an instrument as “… a
document which physically embodies a payment
obligation so that the possessor …(following any
necessary endorsement in his favour) is presumed to
be entitled to claim payment of the money it [the
document] represents.”
• (B.) Negotiable: LS Sealy & RJA Hooley, Commercial
Law (T, C & M), 4th ed., 2004, p. 521 defines negotiable
as

• “… a document of title embodying rights to the

payment of money or security for money, which, by
custom or legislation, is (a) transferrable by delivery (or
by indorsement and delivery) in such a way that the
holder pro tempore may sue on it in his own name and
in his own right, and (b) a bona fide transferee for value
may acquire a good and complete title to the document
and the rights embodied therein, notwithstanding that
his predecessor had a defective title or no title at all.”
DEFINITION IN DIAGRAM
PAYMENT METHODS
• Payment methods are the instruments,
procedures, and institutions which enable
users to meet payment obligations.
• Traditionally, payment methods have been
classified as credit or debit transfers,
depending on whether the payor’s payment
instructions are given direct to its banks (credit
transfer) or pass via the payee (debit transfer).
• Payment methods are either paper based,
electronic, or a combination of both.

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ORIGIN OF NEGOTIABLE
INSTRUMENTS.
The bill of exchange, which is the earliest type
of negotiable instrument, is generally regarded
as having originated in medieval Europe,
perhaps as early as the 12th Century.
Certainly it was well established by the 17th
century.
The conditions of travel with poor roads, slow
modes of transport, and the prevalence of piracy
at sea as well as the possibility of counterfeiting
of local currencies led European merchants,
engaged in the purchase and sale of
commodities, to avoid using gold, silver or
coinage in long-distance mercantile transactions.
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Italian bankers were also at this time
active in loan transaction, lending
substantial sums to merchants from
many countries.
Repayment of the loans raised the same
difficulties of transportation as purchase
and sale transactions amongst
merchants.
The merchants’ response to these
difficulties was to develop written orders
directing money, which was owed by one
merchant or banker to the directing
party, to be paid to a third party to whom
the directing party himself owed money. 11
The prohibition that existed at this time against
lending money at interest gave a further impetus
to the development of these instruments, which
were to become known as bills of exchange.
Banker or other lenders could buy a bill for an
amount less than its face value, and, when the
bill was due to be met, the lender would (as the
new owner) be entitled to be paid its full face
values. the difference, of course, represented the
interest component that otherwise was
prohibited.
 One difficulty remained. If a bill was lost or stolen and
passed to an innocent person who gave value for it,
the law was clear.
 The new “purchaser” did not have title to the bill as
the original owner had never intended title to pass.
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• Negotiable instruments are substitutes for money
• They are treated as documents of title to money.
• Like money (and unlike ordinary contracts), consideration,
good faith, etc., are all presumed
• Examples of negotiable instruments include:
• Cheques
• Promissory notes
• Certificates of deposits
• Bankers drafts (or cashiers cheques),
• Money orders
• Bills of exchange, etc
• These documents are negotiable instruments because
they are easily transferable and make commercial
transactions easier.
• They are assignable (even as debt instruments) by
simple delivery or endorsement & delivery, free from
the equities. (With no requirement to give anyone any
notice! – Thus differs from an ordinary contract.) 13
[Link] NATURE OF NEGOTIABLE INSTRUMENTS
• Valuable consideration is presumed -- no need to state the value
on the instrument.
• It may be transferred from one person to another either by simple
delivery only or by endorsement and delivery (without any need
to give anyone notice);
• The transferee is able to sue upon it in his own name all parties to
the instrument;
• A transferee who takes a negotiable instrument in good faith and
for value obtains a completely good title notwithstanding any
defect in the title of the transferor.
• They have great assignability and negotiability convenience by
being assignable (even as debt instruments) by simple delivery or
endorsement and delivery, free from the equities. (With no
requirement to give anyone any notice!)
[Link] NOTE:
• When a bill contains words prohibiting transfer or indicating an
intention that it should not be transferable, it is valid between the
parties but it is not negotiable.
• Section 6(1) of the Bills of Exchange Act (Act 55) 14
DEFINITION OF BILLS 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 bearer’.
S. 1(1),Act 55

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• The definition sets out the
requirements in a nutshell.
• It may be helpful to start by
describing the parties in a
straightforward type of transaction:
• A bill is an order by one person to
another, requiring that person to pay
money to a third person, or to bearer.

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• The order is written and signed by (A) (the
drawer), and is usually addressed to his or
her bank (B) (the drawee). B is instructed to
pay C (the payee) money. B (the bank) may
pay out of A’s account, and when it does so, it
discharges its debt to A to the extent of the
payment made to C.

• These are the back bones of the transaction.

• The issues are expanded below.

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SAMPLE BILL OF EXCHANGE
Acceptance
• The drawee, B (the bank here), will probably be asked to
accept the bill as well as pay it.
• If B accepts the bill by signing it, he or she will take primary
responsibility for its payment.
• Cheques, however, are not usually accepted; the bank
merely acts as drawee and is not therefore liable to the
payee for the money, (although it may breach its
contractual duty to A, its customer, if it does not pay on his
or her instructions).

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Negotiation
• A bill may order the payment to be made at some future
date, and the payee, C, may not wish to wait until the date
of its maturity and may prefer to sell it to someone else,
probably at a discount.
• A bill which has been accepted by a reliable person or
institution, such as a bank, will provide assurance of
payment at maturity, and C will be able to negotiate its
sale (which will almost certainly be at a discount because
ready money is given for a right of payment in the future)
to another person, D.

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Order or to Bearer
• If the bill is payable to Order (A will have specified that
payment should be made to C or to order), C will have to
indorse (sign) the bill to D to give a good tile.
• C then becomes the first indorser of the bill and D
becomes indorsee or holder.
• If he or she has taken in good faith and for value and the
bill itself is in order, D will become holder in due course
(the holder in due course obtains title free of any equities-
the equivalent of bona fide(genuine/real) purchaser for
value).

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THE FORM OF BOE
• From the definition above, other requirements must be
satisfied:
• It must be unconditional
• In writing
• Signed by the drawer
• It may be payable on demand or
• At fixed or determinable future time, and
• Amount must be certain in money
• If the document does not satisfy all of these, it will not
amount to a bill of exchange and the transferee will not
obtain all the rights granted on the negotiation of a
negotiable instrument
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UNCONDITIONAL ORDER
• This means that there must be no qualification which
would make payment uncertain or give rise to
cumbersome inquiries
• E.g. a bill which specified “pay C when he passes his
exams” would not be valid even if C did pass his exams:
• One which said “pay C’s estate on C’s death” however,
would be-death is not uncertain, although the time at
which it happens, of course, is.

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• An instrument which requires as a condition of payment of
a receipt by the payee on the front or reverse of the
document is not a negotiable instrument.
• Bavins and Sims V London and South Western Bank [1990] 1
Q.B. 270
• The plaintiff received an instrument in the form of a cheque which read:
“Pay to….provided the receipt form at the foot is duly signed and dated”
• The instrument was stolen from the plaintiff, an indorsement forged on it
and the receipt form signed.
• In an action by the plaintiff against the collecting bank, it was held that
the instrument was not a cheque; it depended upon the receipt being
signed and was not therefore an unconditional order.

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• Where, however, the condition or requirement embodied in the cheque is not to be fulfilled by the
drawee bank, but is a direction addressed to the payee, the order is unconditional
• Nathan v. Ogden [1905] 94 L.T. 126
• A cheque drawn in the ordinary form contained a clause requiring a receipt on the back of
the cheque to be signed by the payee.
• The court held that the condition requiring the payee’s signature on the receipt was
addressed to the payee alone, and not to the bank; consequently in this case, the instrument
was a cheque.
• Thairlwall v. Great Northern Railway Company [1910] 2 K.B. 509
• A dividend warrant contained a note that it would not be honoured after 3 months of the
date of issue.
• The court held that the instrument was a cheque and the note did not make the order
conditional, since the words were merely a definition of what was considered a reasonable
time within which the warrants were to be presented for payment, and it was in any case
only a direction to the payee to present the cheque within that time.

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• A cheque may further provide that the instrument must be
presented for payment within a certain period.
• This does not make the instrument conditional, but once
the given period has expired, the payee cannot insist on
payment of the cheque as against the drawer, although the
debt represented by it still remains owing.
• An order requiring payment from a particular account or
fund would not be valid, because there might be
inadequate funds when payment was required.
• An unconditional order to pay, however, coupled with an
indication of a particular fund-e.g. a bill worded “pay C
GhC x and debit my savings account” will be valid.

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• There must be a clear order to pay; even
if the expression of the order is
courteous, it must be a requirement and
not a request.
• Little v Slackford (1829) 1 M.&M. 171
• An instrument in the form “please to let the
bearer have £7…and you will oblige your
humble servant……,” was held to be a mere
request and not a demand on the bank.

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IN WRITING
• Writing include typewriting and printing, although in
practice this may be discouraged by banks because of the
ease with typewritten or printed cheques can be
fraudulently altered.
• The writing does not have to be in ink, but a customer who
writes a cheque by hand would probably facilitate fraud by
drawing it in pencil, and might therefore be negligent; the
bank would probably return it unpaid. The writing does
not have to be on paper, although it must not be written
on metal

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ADDRESSED BY ONE PERSON
TO ANOTHER
• There must be one person as drawer, and another, usually
a bank, as drawee.
• The drawee must be named with reasonable certainty, and
may be an individual or a company.
• There may be one drawee or joint drawees, but not
drawees in the alternative or in succession.
• If the drawer and drawee are the same person, the holder
may treat the instrument either as a bill of exchange or a
promissory note.

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SIGNED BY THE DRAWER
• A bill or cheque, to be a valid instrument, must be signed
by the person giving it (the drawer) or a person authorized
by him or her.
• The instrument is not complete until the drawer has signed
it, so that a cheque form which is otherwise complete is
not valid cheque until signed by the drawer or his or her
agent.
• The ‘mark’ of a person who is illiterate is a satisfactory
signature.

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TO PAY ON DEMAND
• A bill is payable on demand-that is, immediately-either when it is
expressed to be payable, or when it is payable at sight or on
presentation, or when no time for payment is expressed.
• Payable at sight means that it is payable when it is seen for
acceptance or for payment. (This differs from payable after sight)

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AT A FIXED OR DETERMINABLE
FUTURE TIME
• A bill may be said to be payable at a fixed period after date
or sight.

• If it is after sight (eg 90 days after sight) this means that it

becomes mature and therefore payable only on the day
which is 90 days after acceptance or protest for non-
acceptance.

• Similarly, if it is payable at a fixed period after an event

which is bound to happen (even if the date of is uncertain),
it is valid.
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• An event which is not certain to happen, like a
marriage, is a contingency, and a document
specifying a contingency is not a valid bill.
• If acceptance of a bill is the event, for example,
this is a contingency which makes the
document invalid as a bill.
• Williamson v. Rider
• The majority of the English CA came to the
conclusion that an instrument expressed to be
payable “on or before” a particular date is not valid
because the phrase does not state a fixed or
determinable time: the words give the payer an
option to repay on any day of his choosing before
the date.
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• If the bill is said to be payable at a fixed period
after date, and the bill is undated, this is not fatal,
because a holder may insert the ‘true date of
issue’.
• If the wrong date is inserted, a holder in due
course may still obtain payment, on the date
which should have been inserted, not on the
incorrect date.
• Dates on a bill are presumed to be correct unless
the contrary is proved.
• A bill which is ante-dated or post-dated is not
invalid, and a post dated cheque is therefore valid
as a bill, though it is not a true cheque because it
is not payable on demand.
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 A SUM CERTAIN IN MONEY

• A bill or cheque may be drawn or negotiated for any sum of

money but it must be for a certain sum, which normally is
expressed in both words and figures.

36
TO OR TO THE ORDER OF A
SPECIFIED PERSON OR BEARER
• A bill or cheque must specify the person who is entitled to be paid-
the payee, who may be a particular named person, or the bearer, the
person in possession of the instrument.

• If the bill is an order bill-e.g. if it states “pay A” or “pay A or order”-

the person named may present the instrument for payment or may
negotiate it to another person

• The latter case there must be an intention to transfer the property,

coupled with the delivery of the instrument.

• If the order bill has been made non-transferable, however, by words

such as “pay A only” or “not transferable” it may not be negotiated.
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BEARER BILL
• A bill is payable to bearer when it explicitly says “pay
bearer” or when the last or only indorsement is an
indorsement in blank-that is, when the last indorser
has simply written his or her signature on the back of
the bill without specifying any person to whom the
bill is to be transferred.
• A bearer has the effect that any person in possession
of the bill may transfer it without indorsement.
• A bona fide transferee obtaining the bill, even from a
thief, has good title to it, and to the acceptor, if
acting in good faith, obtains a good discharge by
payment to him or her. There are obvious risks in
such a bill.

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HOW PARTIES USE THE BILL

• The parties who sign a bill undertake liabilities which

interlock and can be thought of as a chain of liabilities
and rights.

• A transaction with a bill payable at a future date to a

specified payee who specially indorses it to another
person can be described in stages in this way:

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• These are the parties in this transaction:

• A is the drawer
• B is the drawee, later the acceptor;
• C is the payee; when C indorses the bill to D, C
becomes the first indorser (D is the first indorser)
• D is the second indorser (E the third, F the fourth);

• Whichever of C,D,E,F and G possesses the bill is the

holder of it at that time.

• D, E and F may be holders in due course, but C, the

payee cannot be because bills are not negotiated
to the payee.

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• A draws the bill on B, to pay C, and delivers it to C;
the bill is payable “60 days after sight”;
• C wishing to receive payment immediately,
negotiates the bill to D for an immediate (reduced)
payment;
• C writes on the back of the bill “Pay D” and signs it;
• D presents the bill to B for acceptance;
• If B accepts it, B may write: “Accepted, payable at
X branch,” date, and sign it;
• The bill will mature 60 days after the date of
acceptance;
• If B does not accept it, it is dishonoured for non-
acceptance, and D may immediately seek payment
from A or C;

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• D then negotiates the bill to E, who may in turn
negotiate it to F; who may negotiate it further;
• When the bill reaches maturity, the holder, say G,
should present it immediately to the acceptor for
payment (if G does not, the liability of the other
parties is discharged);
• If B pays, the bill is discharged and B should cancel A’s
signature on it.
• If B does not pay, the bill is dishonoured by non-
payment and G should serve notice of dishonour as
soon as possible on A, C, D, E, and F and seek
payment from the other parties;
• If any of them pays the bill is discharged, because that
party has a right to sue the other parties on the bill;
• The bill is only discharged when there are no more
parties liable on it.
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THE RELATIONSHIPS BETWEEN THESE PARTIES, THE
PROBLEMS WHICH MAY ARISE AND THE APPROPRIATE
DEFENCES ARE EXAMINED AS BELOW;
• Capacity:
• generally, any person with capacity to contract may sign a bill; liability is
co-extensive with the right to contract

• Any person with contractual capacity who signs the bill will be bound as
an indorser to a holder in due course, even if he or she receives no value
for it.

• A person whose signature has been forged does not incur liability;
indeed, the forgery of the drawer’s or indorser’s signature invalidates the
instrument as a bill so that a holder cannot obtain a good title to it,
although he or she is given certain personal rights (by estoppel) against
other parties. 43
NEGOTIABLE INSTRUMENT
UNDER GHANA LAW

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CLASSES OF NEGOTIABLE INSTRUMENTS:
• PROMISES TO PAY
• Those that are promises to pay money
• e.g. promissory notes and certificates of deposit
• ORDERS TO PAY
• Those that are orders to pay money
• E.g. cheques, drafts, bills of exchange, etc.

• LET US NOW CONSIDER A FEW KEY TERMS RELATING TO

NEGOTIABLE INSTRUMENTS BEFORE WE LOOK AT THESE
TWO (2) CLASSES CLOSELY.

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 DEFINITION OF KEY TERMS:
[Section 97 of Act 55]

[Link]
• The drawer is the party who draws a negotiable instrument.
[Link]
• The drawee is the party on whom the instrument is drawn.
[Link]
• When a drawee of a negotiable instrument signifies his assent to the order
of the drawer, he becomes the acceptor of the instrument.

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[Link]
• Acceptance consists of the signification of the assent of the
drawee completed by delivery or notification of the assent to
the holder of the negotiable instrument.
[Link]
• The payee is the party to whom the negotiable instrument is
payable.
[Link]
• The maker is the party who makes an instrument in the form of
a promissory note.
[Link]
• Delivery is the transfer of possession of an instrument from one
person to another whether actual or constructive. [See Section
97 of Act 55]
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• ISSUE
• The first delivery of an instrument, complete in form, to a
person who takes it as a holder is known as the issue of the
instrument.
• NEGOTIATION
• An instrument is negotiated when it is transferred for value to a
person who then becomes entitled to hold it and can sue on it in
his own name.
• A bill payable to bearer is negotiated by delivery. Sec. 29(2)
• A bill payable to order is negotiated by the holder’s
endorsement completed by delivery. Sec. 29(3)

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• ENDORSEMENT
• Endorsement takes place when the name and/or the signature of the transferor is
written on the instrument and it is completed by delivery to the transferee.
• ENDORSER
• Endorser is the transferor whose name and/or the signature is written on the
instrument.
• ENDORSEE
• Endorsee is the person to whom an instrument is transferred by endorsement.
• BEARER
• A bearer is the person in possession of an instrument payable to bearer or on
which the last endorsement is an endorsement in blank.
• HOLDER
• The holder is the payee or endorsee of an instrument who is in possession of it, or
the bearer thereof

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PROMISE TO PAY
• CERTIFICATE OF DEPOSIT
• This is a promise to pay issued by a banker. By a certificate of deposit, a
bank acknowledges that it has received a deposit from the depositor, and
promises to repay the depositor upon demand.
• PROMISSORY NOTE
• 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.”
• Section 83(1) of Act 55

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ORDERS TO PAY
• CHEQUES (INCLUDING MONEY ORDERS)
• “A cheque is a bill of exchange drawn on a banker payable on demand”.
• Section 72 of the Bills of Exchange Act (Act 55)

• BILLS OF EXCHANGE
• “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.”
• (Section 1(1) of the Bills of Exchange Act, 1961 (Act 55))
• Thus if payment is conditioned on any contingency, the instrument will be an invalid
bill.

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• BANKER’S DRAFT
• IS A BANKER’S DRAFT A CHEQUE?
• Any draft payable on demand drawn by a banker upon himself, whether
payable at the head office or some other office of his bank is considered
a cheque;
• And the provisions of Sections 75 to 81 of Act 55 relating
to cheques apply to such drafts and have effect in relation
to such drafts, as they have effect in relation to cheques.
• OTHER CHEQUE SUBSTITUTES
• CAN OTHER DOCUMENTS SUBSTITUTE A CHEQUE?
• Any document issued by a customer of a banker which, though not a
cheque, is intended to enable a person to obtain payment from that
banker of the sum mentioned in the document; is considered a
cheque;
• And the provisions of Sections 75 to 81 of Act 55 relating to cheques shall
apply to such documents and have effect in relation to them, as they
have effect in relation to cheques.
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DETAIL DISCUSSION OF THE VARIOUS
NEGOTIABLE INSTRUMENTS

• BILLS OF EXCHANGE
• Section 1(1) of the Bills of Exchange Act, 1961 (Act 55):
• “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.”

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• An unconditional order.
• Ordering the payment of money out of a particular fund is
conditional. – S. 1(3)
• An unqualified order to pay, coupled with an indication of a
particular fund out of which the drawee is to reimburse himself
is not conditional – Section 1(3)
• An unqualified order to pay, coupled with an indication of a
particular account to be debited with the amount is not
conditional. – Section 1(3)
• Guaranty Trust Co. of New York v. Hannay & Co. [1918] 2 K.B. 623, 635
• An unqualified order to pay, coupled with a statement of the
transaction which gives rise to the bill is not conditional. –
Section 1(3)

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 NOTE:
• A bill may be accepted conditionally and such conditional or qualified
acceptance is valid. – Section 17(1)&(2)
• A drawer of a bill and any endorser may qualify in any way he pleases, his
liability to the holder. – Section 14(a)
• Payment must not depend on a contingency. E.g., Pay A (or We promise to pay A)
the sum of $20,000,000 if an event occurs:
• (We promise to pay …, on the death of George , provided he leaves either
of us sufficient money to pay the said sum, or if we shall be otherwise able
to pay it.)
• After someone marries.
• After someone gives birth
• After complying with certain terms
• On the sale of goods, produce or property
• On the honouring of drafts (or cheques) given to us by B which said drafts fall due on (a future date)
(say, February 8, 2020).
• 30 days after the arrival of the ship Paragon at Tema

• [All these examples are contingencies as they may or may not occur. Thus if
payment is conditioned on any such contingency, the instrument will be an
invalid bill -- void.]
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• An instrument expressed to be payable on a contingency is not
a bill, and the happening of the contingency event does not
cure the defect. – Section 9(2).
• Carlos v. Fancourt (1794) 5 T.R. 482, @485 per Lord Kenyon:
• “It would perplex the commercial transactions of mankind, if paper
securities of this kind were issued out into the world, encumbered
with conditions and contingencies, and if the persons to whom they
were offered in negotiation were obliged to inquire when these
uncertain events would probably be reduced to certainty.

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• Addressed by one person to another.
• Addressed by the drawer to the drawee.
• The drawer and the drawee of a bill can be the same person. –
Section 3.
• A holder of any such bill (having the same person as both drawee
and drawer) may treat it, at his option, as either a bill of
exchange or a promissory note. -- Section 3(2)
• In any case, the drawee must be named or otherwise indicated
in a bill with reasonable certainty. – Section 4

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• Signed by the person giving it.
• The person signing the bill is called the drawer.
• This is an essential feature of a bill of exchange.
• In its absence, an acceptance is inoperative.
• Even if an unsigned instrument is accepted by the drawee, it cannot be
treated as a promissory note of the acceptor.
• Signature essential to liability of the drawer. – Section 21.
• It can be a mark and such signing by mark should be habitual of the person
so signing.
• If signed by a mark, there is no need to prove that the person so signing
cannot write.
• If a bill is signed, it is a complete and regular bill, even if it is unaccepted by
the drawee.
• Signing an inchoate (incomplete) instrument gives the person in possession
of it a prima facie authority to fill up the omission in any way he thinks fit! –
Section 18(1). Such filling up should be within reasonable time (a question
of fact) and strictly in accordance with the authority given. – Section 18(2).

58
• BUT NOTE THE PROVISO! “… if any such instrument after
completion is negotiated to a holder in due course, it shall
be valid and effectual for all purposes in his hands, and he
may enforce it as if it had been filled up within reasonable
time and strictly in accordance with the authority given! –
Section 18(2)
• HOWEVER THIS PROVISO APPEARS VERY RESTRICTIVE!
• It should have been negotiated to the holder.
• The holder must be a holder in due course.

59
• Requiring the person to whom it is addressed.
• The person to whom the bill is addressed is the drawee.
• To pay.
• When drawee undertakes to pay he is called the acceptor.
• An acceptance to pay must not express that the drawee will
perform his promise by any other means than the payment of
money. – Section 15(2)(b)
• The drawee is not liable to pay money to the payee or holder of
the bill until he accepts the bill. – Section 51.
• A verbal undertaken to pay is invalid. – Section 15(2)(a)
• Drawee’s mere signature on the bill, without additional words, is
sufficient. – Section 15(2)(a)
• A drawee who does not accept a bill is not liable on the
instrument – Section 51

60
• WHY?
• Because, a bill of itself does not operate as an assignment of
funds in the hands of the drawee available for the payment
thereof. – Section 51.
• Brown, Shipley & Co. v. Kough (1885) 29 Ch.D. 848
• (Facts: Bill drawn by B&Co. on K in London was purchased by A in
America. B&Co. informed K by letter of advise on the same day of the bill
they had drawn on K in favour of A. K subsequently refused to accept the
bill. Held: Refusal valid. The direction on the face of the bill did not
operate as an equitable assignment.)
• The payee must be named or otherwise indicated with
reasonable certainty. – Section 5.
• To pay on demand or
• Section 8 of Act 55 (“If a bill of exchange is made payable at a
never so distant day, if it be a day that must come, it is no
objection to the bill.”)
61
• At a fixed or determinable future time.
• Section 9 of Act 55.
• Uncertain –A promissory note payable with interest 12 months
after notice.
• On or before a given date (invalid) [Williamson v. Rider [1963] 1
Q.B. 89
• Twelve months after date (valid)
• After sight (if simply so stated, it is invalid!) NOTE the distinction
with at sight
• After sight is acceptance (so use a period after sight!). BUT At
sight is demand.
• If it’s a note, then after sight refers to exhibiting the note to the
maker. So it can be valid for notes.

62
• A sum certain in money.
• A bill or note must be payable in money in specie or legal currency
• It must not order any act to be done in addition to the payment of money! --
Section 1(2)
• The sum must be certain
• It must be susceptible to contingent or indefinite additions or deductions.
• According to Section 7(1) a sum is certain even if it is required to be paid:
• With interest
• By stated instalments
• By stated instalments but with provision on full becoming due on default.
• According to an indicated rate of exchange
• According to a rate of exchange to be ascertained as directed by the bill.
• Sums in words trump sums in figures in cases of discrepancies. – Section 7(2)
• If figures higher than words evidence to explain difference is inadmissible.
• Inaccurate but intelligible statement of sum payable is valid.
• [Pound instead of Pounds]
• [Twenty-five, seventeen shillings and three is £25 17s. 3d.]
63
• To or to the order of a specified person, or
• Such bills are referred to as order bills.
• The person so named in such bills is the payee
• To bearer.
• Such bills are referred to as bearer bills.
• If an instrument does not comply with these conditions is not a bill of
exchange.
• So though no precise form of words is essential to the validity of a bill
of exchange, any bill must comply substantially with the above
requirements.
• However, if an instrument is defective as a bill or note, it may still be
evidence of an agreement.
• NOTE: SECTION 1(4)(a)-(c)
• A bill is not invalid merely because it is not dated
• A bill is not invalid because no value is given.
• A bill is not invalid because it does not specify place where drawn or
payable.
64
LEGAL EFFECT OF DRAWING OR INDORSING A BILL

• If a drawer draws a bill payable to a third party, it is a contract by the drawer to

pay the payee, his order, or the bearer, as the case may be, conditionally on the
acceptor’s (or drawee’s) failing to do so.
• The legal effect of accepting a bill, is an absolute contract, on the part of the
acceptor to pay the payee, his order, or the bearer as the instrument may
require.
• The legal effect of making a note, is an absolute contract, on the part of the
maker to pay the payee, his order, or the bearer as the instrument may require.
• The legal effect of indorsing a bill is a conditional contract, on the part of the
indorser, to pay the immediate or any succeeding indorsee, or bearer, in case of
the acceptor’s default.
• The legal effect of indorsing a promissory note is a conditional contract, on the
part of the indorser, to pay the immediate or any succeeding indorsee, or
bearer, in case of the maker’s default.

65
NEGOTIATING A BILL
• A bill is negotiated when it is transferred from one person to
another in such a manner as to constitute the transferee the
holder of the bill s. 29(1).
• A bill payable to bearer is negotiated by delivery s. 29(2)
• A bill payable to order is negotiated by the endorsement of the
holder completed by delivery s.29 (3).
• A person who acquires a negotiable instrument for value and in
good faith is entitled to ignore all previous claims to the document.
• The most important type of negotiable instrument is the Bill of
Exchange: a Cheque is a kind of bill of exchange.
• The extensive body of case law and customary rules concerning
bills of exchange is codified in the Bills of Exchange Act 1960, (Act
55).
66
• NOTE: A BILL MAY NOT BE A NEGOTIABLE INSTRUMENT!
• Section 6(1) of Act 55 provides that when a bill contains
words prohibiting transfer or indicating an intention that it
should not be transferable, it is valid between the parties
thereto but it is not negotiable.
• Why is this so?
• Also, since the essence of a bill of exchange is negotiability,
if a bill prohibits transfer -- and transfer is indispensable in
negotiability -- See s.29 (1) -- should it still be a bill of
exchange?
• Yes! See Section 1 of Act 55 (which does not mention
negotiability in its definition of a bill) and Section 6(1) (which
permits such limiting of negotiability)!

67
 REQUIREMENTS OF NEGOTIABILITY
• In order that the holder of a negotiable instrument may have all the rights
which such a document can give, the following conditions must be satisfied:
• Value must have been given - this is the principle of consideration found in the law of
contract and which evidences that the agreement of the parties is a bargain. S. 25(1)
(a).
• However, in the case of negotiable instruments past consideration is good consideration, for
example, a cheque is valid even if issued in settlement of an existing debt. S. 25(1) (b).
• If the present holder of the instrument has not himself given value but some previous holder had
done so, the holder is a holder for value and he is given some measure of protection. S. 25(2).
• Every party whose signature appears on the bill is prima facie deemed to have given value s.
28(1).
• Secondly, the holder of the instrument must have acted in good faith i.e. honestly,
without knowledge of any defect in title of a previous holder. S. 90 of Act 55 says that
a thing is deemed to be done in good faith where it is in fact done honestly, whether
it is done negligently or not.
• Thirdly, the instrument must be complete and regular – that is, the instrument must
appear to be in order on the face of it:
• It must not be overdue or show signs of unauthorized alterations.
• The fourth requirement is that instrument must be deliverable (i.e., capable of
transfer by being physically handed over).
68
BEARER BILL AND ORDER BILL
• Sec. 6(2) provides that a bill may be payable either to order or to bearer.
• BEARER BILLS
• If the document is payable to any person who holds it, that is to the bearer, it can be
negotiated, i.e., transferred with good title, merely by delivery.
• Sec 6 (3) provides that a bill is payable to bearer which is expressed to be so
payable or if the only or last endorsement is an endorsement in blank then the bill
is a bearer bill. That is if the bill does not contain or mention any name. Also
where there are number of endorsements and the last endorsement is an
endorsement in blank.
• ORDER BILLS
• If it is payable to a named person or to his order that is, an order bill, then that person must
sign on the reverse side or indorse it in order to make the instrument capable of being
negotiated by delivery to the next holder.
• Sec 6(4) of Act 55 provides that a bill is payable to order which is expressed to be
so payable or expressed to be payable to a particular person. In addition it must
not contain words prohibiting transfer or indicating an intention that is should not
be transferable. An order bill is negotiable and thus freely transferable. 69
ENDORSEMENT
• Endorsement takes place when the name and/or the signature
of the transferor is written on the instrument and it is
completed by delivery to the transferee. Instruments payable
to order can only be negotiated by endorsement of the holder
and completed by delivery.
• NOTE: Where a bill purports to be endorsed conditionally, the
condition may be disregarded by the payer, and the payment
to the endorsee is valid whether or not the condition is
fulfilled. See Section 31 of Act 55.

70
 CONDITIONS FOR ENDORSEMENT

• For endorsement to be effective it must satisfy certain

conditions. These conditions as laid down in Section 30 of Act 55
include the following:-
• It must be written on the bill itself and signed by the endorser. The
simple signature of the endorser on the bill without additional words is
sufficient. NOTE: An endorsement on an allonge or on a ‘copy’ of a bill
issued or negotiated in a country where ‘copies’ are recognised, is
deemed to be written on the bill itself.
• It must be an endorsement of the entire bill. A partial endorsement
does not operate as a negotiation of a bill. Thus an endorsement which
purports to transfer to the endorsee a part only of the amount
payable, or which purports to transfer the bill to two or more
endorsees severally is not an effective or valid negotiation.

71
• Where a bill is payable to two or more payees or endorsees who are
not partners, all must endorse, unless the one endorsing has
authority to endorse for the others.
• Where, in a bill payable to order, the payee or endorsee is wrongly
designated or his name is mis-spelt, he may endorse the bill as
therein described, adding, if he thinks fit, his proper signature.
• Where there are two or more endorsements on a bill, each
endorsement is deemed to have been made in the order in which it
appears on the bill, until the contrary is proved.
• An endorsement may be made in blank or special or contain terms
making it restrictive.

72
TYPES OF ENDORSEMENT
• An endorsement may be made in blank or special or
contain terms making it restrictive.
• BLANK ENDORSEMENT
• An endorsement in blank specifies no endorsee. Section
32(1)
• A bill endorsed in blank becomes payable to bearer. See
Sections 6(3)&32(1)
• However, a bill endorsed in blank may be converted, by
any holder, into a special endorsement by writing above
the endorser’s signature a direction to pay the bill to or to
the order of himself or some other person.

73
• SPECIAL ENDORSEMENT
• A special endorsement specifies the person to whom, or to
whose order, the bill is to be payable.
• As noted earlier, a bill endorsed in blank may be
converted, by any holder, into a special endorsement by
writing above the endorser’s signature a direction to pay
the bill to or to the order of himself or some other person.

74
• RESTRICTIVE ENDORSEMENT
• According to Section 33(1) of Act 55, an endorsement is restrictive if it:-
• Prohibits the further negotiation of the bill; or
• Expresses that it is a mere authority to deal with the bill as thereby directed, and not
a transfer of the ownership thereof.
• Examples:
• Pay Diana Mintah only
• Pay Joana Kwofie for the account of David Solomon
• Pay Martha Kwarteng or order for collection.
• According to Section 33(2) of Act 55, a restrictive endorsement gives the endorsee
the right to:
• (i) Receive payment of the bill
• (ii) Sue any party thereto that his endorser could have sued.
• However, a restrictive endorsement does not give the endorsee any power to
transfer his rights, unless the restrictive endorsement expressly authorizes the
endorsee to do so. (See Section 33(2) of Act 55). In cases where a restrictive
endorsement authorizes further transfer, all subsequent endorsees take the bill with
the same rights and subject to the same liabilities of the first endorsee under the
restrictive endorsement. Section 33(3) of Act 55.
75
HOLDER, HOLDER FOR VALUE, HOLDER IN DUE COURSE

• HOLDER
• Act 55 defines very carefully what is meant by a 'holder of a bill'.
• S. 97 says that holder “means the payee or endorsee of a bill or note who
is in possession of it, or the bearer thereof”.
• A person in possession of an unendorsed order bill is not a holder, though
he gave value for the bill, and cannot sue in his own name. Good v. Walker
(1892) 61 L.J.Q.B. 736.
• However, by Section 29(4), such a person in possession of an unendorsed
order bill, has the right to have the bill endorsed to him (Section 29(4);
Cook v. Hoosain Mia (1912) 33 N.L.R. 12), and will become holder as from
the date of endorsement, if subsequently made. Day v. Longhurst (1893)
62 [Link]. 334.
• A drawer of a bill to his own order (even if unendorsed), is the holder
thereof (upon its acceptance). Walters v. Neary (1904) 21 T.L.R. 146
76
• HOLDER FOR VALUE
• S. 97 says a holder means a payee or endorsee or a bearer of a bill.
• S. 97 says value means valuable consideration.
• S. 25 says valuable consideration may be constituted by any
consideration sufficient to support a simple contract including past
consideration Section. 25(1)(a)&(b).
• A holder for value would seem on the basis of these sections to be a
person who holds or is in possession of a bill for which consideration
has been given by the holder or someone else.
• Section 25(2) shows that the holder for value does not himself need
to give consideration.
• Also, every party whose signature appears on the bill is prima facie
deemed to have given value. Section 28(1).
• Also, a person may have knowledge of a defect in the bill and still be
a holder for value but such a person cannot be a holder in due
course.
77
• HOLDER IN DUE COURSE
• Section 27(1) of Act 55 defines a holder in due course as
follows:-
• A holder in due course is a holder who has taken a bill,
complete and regular on the face of it, under the following
conditions, namely that:
• (a)he became the holder of it before it was overdue, & without
notice that it had been previously dishonoured, if such was the
fact; or
• (b)he took the bill in good faith and for value, & that at the time
the bill was negotiated to him he had no notice of any defect in
the title of the person who negotiated it.

78
• A holder in due course holds the bill free from any defects in title of prior
parties.
• Section 27(2) lists some examples of acts that my cause a defect in title:
• When the person negotiating the bill obtained it or acceptance thereof by
• Fraud
• Duress
• Force and fear
• Other Unlawful means
• Or for an illegal consideration
• Or when he negotiates it in breach of faith
• Or such circumstance that amounts to fraud

• Its conclusively presumed that every party to the bill prior to him made a
valid delivery of it. Section 19(2)(b)( … in the hands of a HDC, a valid delivery
of the bill by all parties prior to him so as to make them liable to him is
conclusively presumed.)
• The person to whom a current and apparently regular negotiable
instrument has been negotiated, who takes it in good faith and for value,
obtains a good title to it even though his transferor had a defective title or
no title to it. Section 36(b)&(c).
79
• (1) HOLDER
• Though the payee can be a holder for value, arguably, the
payee cannot be a holder in due course! Because bill is
issued to him; NOT NEGOTIATED TO HIM! For one to be a
holder in due course, the bill must have been negotiated
to him! – Section 27(1)(b).
• R.E. Jones Ltd. [Link] & Gillow [1926] A.C. 670
• Lewis v. Clay (1897) 14 T.L.R. 149
• BUT see the case of Herman v. Wheeler [1902] 1. K.B. 361;
Lloyds Bank Ltd. v. Cooke [1907] 1 K.B. 794 (CA)

80
• (2) BILL
• The instrument must be a bill.
• It must have been ISSUED. An instrument is not a bill if it has not been
issued! See Sections 97 and 19(1). Ingham v. Primrose (1859) 7 C.B.
(NS) 82
• The instrument is not a bill if the purported signature of the drawer is a
forgery. Section 22
• The instrument is not a bill if the drawer has no capacity to contract.
Section 20 (1). Although such an instrument might not be enforceable
against the drawer or endorser of incapacity, it may however entitle the
holder to enforce it against any other party thereto. Section 20 (2).
• The instrument is not a bill if the drawer of the bill or maker of the note
signs it in the reasonable belief that he is witnessing someone else’s
signature to another document. NOTE: The drawer is in such cases
entitled to a plea of non est factum. Lewis v. Clay (1897) 14 T.L.R. 149.

81
• (3) COMPLETE AND REGULAR
• The instrument must be complete and regular – that is, the
instrument must appear to be in order on the face of it: both
front and back. The expression therefore includes the
endorsements. Arab Bank, Ltd v. Ross [1952] 1 All E.R. 709, 715
per Lord Denning.
• Facts: The Pt bank sued as holders in due course of two promissory notes
made by the Dt in favour of “Fathi and Faysal Nabulsy Company,” which
were endorsed “Fathi and Faysal Nabulsy”.
• Held: The endorsement was sufficient to pass a title but the bank were
not holders in due course as the endorsement was irregular.
• So if there is anything on the instrument, or any omission, which should put a
transferee on inquiry, it will be difficult to claim HDC status.
• Even an alteration of the date is material and prevents a cheque from being
regular on the face of it.

82
• (4) OVERDUE
• Section 34 deals with overdue bills.
• Section 86 deals with overdue notes.
• Sections 34(3) and 86 deal with bills and notes that are payable on
demand. [Section 8 defines bills payable on demand].
• Section 12 deals with the computation of time for payment of bills
that are not payable on demand BUT payable at a future time.
(Under section 12 such bills or notes are not overdue till after the
expiration of the three (3) days of grace). [Section 9 defines bills
payable at a future time NOT on demand].
• Section 34(3) says that a bill payable on demand is overdue if it
appears on the face of it to have been in circulation for an
unreasonable length of time.
• Reasonable length of time is a question of fact.
• Section 86(2) gives guidelines on how to determine a reasonable
length of time.
83
• (5) DISHONOUR
• Section 34(5) deals with dishonoured bills. A holder in due
course must not have any notice of any such dishonour of
the bill in question. According to Section 34(5), where a bill
which is not overdue has been dishonoured, any person
who takes it with notice of the dishonour takes it subject to
any defect of title attaching thereto at the time of
dishonour BUT such a defect will not affect a holder in due
course who takes the bill without notice of the dishonour.
See section 27.

84
• (6) GOOD FAITH
• The holder of the instrument must have acted in good
faith i.e. honestly, without knowledge of any defect in title
of a previous holder. Section 90 of Act 55 says that a thing
is deemed to be done in good faith where it is in fact done
honestly, whether it is done negligently or not.
• Mere negligence, however gross, not amounting to wilful
or fraudulent blindness and abstinence from inquiry, will
not of itself amount to lack of good faith, but it may be
evidence of notice.

85
• (7) NOTICE
• Notice may be particular (express) or general.
• Particular notice is where the holder had notice of the
particular facts avoiding the bill.
• Midland Bank v. Reckitt [1933] A.C. 1, 19
• General notice is where the holder had notice that there
was some illegality or some fraud vitiating the bill, though
he may not have been apprised of its precise nature.
• A wilful or fraudulent absence of inquiry into the
circumstances, when they are known to be such as to invite
inquiry, will (if the abstinence from inquiry arose out of a
belief or suspicion that an inquiry would disclose a vice in
the bill) amount to a general or implied notice. Jones v.
Gordon
86
• There must however be something to put the holder on inquiry!
• Guildford Trust v. Goss
• Facts: Money lenders took post-dated cheques in repayment of loans. They were
drawn by one partner, indorsed by another, and dealt with by a third partner.
• Held: The facts did not put the transferees on inquiry.
• There is no question of constructive notice! Notice in section 27
refers to actual notice. The equitable doctrine of constructive
notice by which a man, who refrains through gross negligence
from making enquiries, is held to have had notice, is
inapplicable to negotiable instruments. Joint Stock Bank v.
Simmons (per Lord Herschell)
• Note section 27(3)!! – It implies that even if one had notice, so
long as he is not complicit in the fraud or illegality, and obtained
the title through a holder in due course,… he has a valid title.

87
• HDC MUST BE A HOLDER FOR VALUE
• A holder in due course must necessarily be a holder for value. Value
must have been given. S. 25(1) (a). Past consideration is good
consideration. S. 25(1) (b). Also, if the present holder of the
instrument has not himself given value but some previous holder had
done so, the holder is a holder for value and he is given some
measure of protection. S. 25(2). But this is not the case when we are
dealing with HDC.
• Every party whose signature appears on the bill is prima facie deemed to have
given value s. 28(1). But this presumption will be inapplicable to HDC.

88
PROMISSORY NOTE
• A promissory note is one kind of a Bill of Exchange. Section 83(1)
of Act 55 defines a promissory note as 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.
• an unconditional promise
• in writing
• made by one person
• to another
• signed by the maker,
• engaging to pay,
• a sum certain in money
• on demand, or at a fixed or determinable future time,
• to, or to the order of, a specified person or to bearer
89
• For cases discussing the characteristics of a
promissory note, see:
• Sabblah v. Tawiah [1966] GLR 145
• Directors of Orthodox Secondary School of Peki
v. Tawlma-Abels [1974] 1 GLR 419
• Section 84 provides that a promissory note is
inchoate and incomplete until it is delivered
to the payee or bearer.

90
CERTIFICATES OF DEPOSIT

• This is a promise to pay issued by a banker. By a certificate of deposit,

a bank acknowledges that it has received a deposit from the
depositor, and promises to repay the depositor upon demand.
• Today, certificates of deposit are processed electronically.

91
SAMPLE CERTIFICATE OF
DEPOSIT
 CHEQUES (INCLUDING MONEY ORDERS)

• Section 72 of Act 55 provides what a cheque is

• Section 1(1) of Act 55 provides that “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.”

93
• A cheque must have the following characteristics:
• It must be an order
• The order must be unconditional
• It must be in writing
• Addressed by one person to a banker
• Signed by the person giving it
• Drawn on a banker
• Payable on demand
• Require the banker to pay
• On demand
• A sum certain in money
• To the order of a specified person or
• To bearer

94
SAMPLE CHEQUE
• IS A BANKER’S DRAFT A CHEQUE?
• Section 82(b)
• “Any draft payable on demand drawn by a banker upon
himself, whether payable at the head office or some other
office of his bank;” is considered a cheque; and the
provisions of Sections 75 to 81 of Act 55 relating to
cheques shall apply to such drafts and have effect in
relation to such drafts, as they have effect in relation to
cheques.

96
• CAN OTHER DOCUMENTS SUBSTITUTE A CHEQUE?
• Section 82(a)
• “Any document issued by a customer of a banker which,
though not a cheque, is intended to enable a person to obtain
payment from that banker of the sum mentioned in the
document;” is considered a cheque; and the provisions of
Sections 75 to 81 of Act 55 relating to cheques shall apply to
such documents and have effect in relation to them, as they
have effect in relation to cheques.

97
• CROSSED CHEQUES
• A cheque may be open or crossed.
• A crossed cheque is one which has two
parallel traverse lines drawn across its face
with or without words written on it in
addition to the crossing.
• When a cheque is crossed it can only be paid
to a banker.

98
TYPES OF CROSSING
• General crossing
• Where the cheque contains the two parallel lines simply it is a
general crossing. 75(1)(b)
• Where the cheque contains the two parallel lines with the words
“not negotiable” it is a general crossing. Section 75(1) (b)
• Where the cheque contains the two parallel lines plus the words
“and company” or any abbreviation of same between the two
parallel lines it is a general crossing. 75(1) (a)
• Where the cheque contains the two parallel lines plus the words
“and company” or any abbreviation of same between the two
parallel lines with the words “not negotiable” it is a general
crossing. 75(1)(a)

99
CROSS CHEQUES
• Special crossing
• A special crossing is one which bears across its face an addition
of the name of a banker, 75(2)
• A special crossing is one which bears across its face an addition
of the name of a banker, with the words “not negotiable” 75(2).
• In such cases the cheque is crossed specially and to that specific
banker. Sections 75(2) & 78(1).
• According to Section 78(1), a specially crossed cheque is specific
to the banker named and no other unless it is crossed to an
agent for collection and that agent happens to be a banker.

101
• DETERMINATION OF A CHEQUE
• A banker’s authority to pay a cheque is
determined by:
• Countermand; that is stopping the cheque.
• Notice of the death of the customer;
• What of mental incapacity?
• What of bankruptcy?
• Where by contract banker is not required to
overdraw the account?

102
PAYING BANK
• What is a paying bank?
The bank on whom a cheque is drawn for payment and effects
payment upon presentation by debiting the account of the drawer
of the cheque
Duties of a Paying Bank
• To obey a customer’s mandate and pay his cheque if it is properly
drawn; Signed in accordance with the mandate it holds; has sufficient
funds; and without any legal and constructive bars to the mandate
• The cheque must be current and presented within banking hours.
• Exercise reasonable care and skill
• Ensure the interest of 3rd parties having rights or claims over the
customer’s money. Eg. Garnishee Orders
Risk of the Paying Bank
• Breach of Mandate: A breach could occur in any of the following ways
• Non-compliance with signature instruction
• Forged and unauthorized signature
• Failure to comply with mandate of accounts or joint accounts
• Payment of countermand or stopped cheque. This can be done by:
• It must be in writing- a Phone call can be accepted awaiting a written instruction
• Communicated to the bank; at the account holding branch
• Unequivocal: details of the cheque. Cheque number
Protection of the Paying Bank-
Contrary to Mandate
• Estoppel: customer would be Estopped
• The customer is prevented by law from denying his instructions, if he misled
the bank or had actual knowledge of the forgery. These may arise in one of
two ways
• Customer has actual knowledge of his forged signature but does not inform the banl of
the forged signature (Greenwood v. Martins Bank)
• Bank relied on a misleading statement from the customer (Brown v. Westminster Bank
ltd)
• Subrogation: Bank steps into the shoes of the Customer and claim from the person
wrongly paid.
Protection of Bank: Where Payment
was made under a Mistake
• Protection against Payment under a Mistake
• Payment under a mistake could arise in the following circunstances
• Payment made upon a forged signature, stoppe cheque or breach of mandate
• Payment was due to a mistake of fact
• Payment has been made due to that mistake.

• Protection against Paayment made in Good Faith & without

Negligence:-this is available against an action for conversion-Statutory
Protection (S.79 of Act 55)
The collecting Bank

• A collecting Bank is the bank that a holder of a cheque pays the

cheque to soas to have his account with that bank credited with the
value of the Cheque upon receipt of value for that Cheque
 Duties of the Collecting Bank (CB) to
Customer/Holder /True Owner

• The CB acts as Agent of the holder of the Cheque and must act in
good faith, with reasonable skill and diligence.
• CB to Notify Customer of Dishonoure Cheque-notify the custmer
immediately the Cheque is dishonored
• CB Duty to the true owner: to ensure that it does not facilitate conversion
Duties of the Collecting Bank to
Paying Bank

• CB owes the Paying Bank a duty not to present a forged Cheque or

facilitate payment to wrong beneficiaries or fraudsters.
Risks of the Collecting Bank

• Risks CB’s are Exposed To:

• Conversion: facilitating the payment of a Cheque to a non-owner.

• Failure to give notice of a dishonoured cheque

Protection Available To a Collecting
Bank
• Protection for CB- If it acts in good faith and without negligence-S.81

• What constitutes Negligence of a Collecting Bank?

Failure to properly complete account opening procedures. (Ladbroke v. Todd)

Failure to ascertain the existence of a fiduciary relationship between the
Customer and the Drawer or the Customer and the Payee

Eg. As between Principal & Agent ; Employer & Employee

Failure to enquire and receive satisfactory responses on suspicious transactions
or circumstances
Revocation of Paying Bank’s
authority to pay Cheques
• The Bank’s authority to pay a cheque drawn on it by its customers
shall be revoked where the:
• Customer Counterbands or Cancel: The customer counterbands or cancels
the instructions to pay. The instructions must be clear and precise
(Westminster Bank v. hilton).
• Notice of eath & Mental Capacity of Customer: Notice of customer’s death or
mental incapacity is brought to the attention of the bank.
• Court Order: Receipt of a court order that affects the accoount- agarnishee
order, preservation or freezing order
Revocation of Paying Bank’s
authority to pay Cheques
• Bank has Notice of bankruptcy order
• Bank has Notice of Commencement of Liquidation of a corporate
customer
• Bank has knowledge of defect in the title of the presenter
• Customer is a citizen of an alien enemy at a time of war.
• Bank has knowledge of misapplication of funds. Knowledge could be
actual or constructive.