LAW 601 Lecture Notes - Lecture 4: Cheque, Bearer Instrument
19 Feb 2017
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Lecture 4
Chapter 14 – Negotiable Instruments
Negotiable Instrument → a contract containing an obligation to pay money
Three differences NI have with regular contracts:
1. Consideration: involves mutual exchange of value. Typically, in contractual relations pre-existing
contractual obligations do not qualify as considerations by the law but in this case consideration under
contract (e.g. sales contract) can also be consideration for a NI
2. Privity: refers to the relationship that exists between the individuals who create the contract.
Hoee, ith a heue, aoe ho holds the heue a hold ou liale fo paet ou do’t eed
Privity).
3. Assignment: process of transferring rights to a TP, but subject to the equities (wth??). Negotiable
istuets a ipoe as it passes o to aothe peso. Geeall, it’s easie to sue o a NI tha o a
contract
BILLS OF EXCHANGE
• In 1882 British Parliament enacted the Bills of Exchange Act, intention was to increase economic
efficiency by providing business people with a set of rules regarding non monetary payments
• Shortly after Canada followed in 1890 with our own Bills of Exchange Act
TYPES OF NEGOTIABLE INSTRUMENTS
Five mandatory requirements for all negotiable instruments:
1. Signed & Written: although must contracts can be completed orally NI MUST be signed +
written
2. Parties Clearly Identified
3. Specific Sum of Money Indicated
4. Certain Time of Payment
5. Unconditional Obligation: e.g. aot ilude payet to e ade if the uyer is satisfied
Types of Negotiable Instruments
CHEQUES: an order by one party (drawer) that directs a bank (drawee) to provide money to someone
(payee). Most cheques run smoothly but there are 5 possible complications:
➢ Postdated Cheques – is a cheque dated for future withdrawal. Sometimes a drawer is willing to
deliver a cheque immediately but does not want it to be cashed out till later
➢ Staledated Cheques – when payee does not seek payment within a reasonable time frame, then
banks will normally not honor the cheque that is presented (typically 6 months after that
appears on the cheque)
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