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Chapter 14 Special Contracts Negotiable Instruments.docx

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Ryerson University
Law and Business
LAW 603
Gil Lan

Chapter 14 Special Contracts Negotiable Instruments Negotiable instrument- consists of a contract that contains an obligation to pay money • Consideration- something of value given in exchange, but in the case of a cheque it is a promise • Privity – stranger who did not participate in contract cannot sue on it • Assignment- can be assigned to a stranger The Bills of exchange Act • 1882 Enacted bills of exchange act in britan • The bills of exchange act is much less flexible than the sale of goods act • Contains a large number of rules that a contract must satisfy if those requirements are not met the act does not apply Types of Negotiable Instruments • Bill of exchange act applies only to cheques, bills of exchange and promissory notes • Five requirements that must always be met for the act apply • Signed and written- contracts can be created orally, a negotiable instrument must be signed and written • Parties identified- parties must clearly be defined , must be possible to show who must make the required payment • Certain sum of money- obligation must deal with the payment of money, not with things such as delivery of goods or performance service ,negotiable instruments may involve the payment of an interest it cannot require payment of a reasonable price or any money that may have been won in a lottery, also must be able to calc money by simply looking at the document itself • Time of payment- must be clearly stated, a person buying must be able to determine when the piece of paper can be turned into cash • Unconditional Obligation - if the person buys a car with a cheque it cannot require to be made if the buyer is satisfied with the car Concept summary 14.1 pg 324 Cheques • Created when a person orders a bank to pay a specific amount of money to someone • Drawer- is the person who draws or creates the cheque • Drawee- is the bank that is ordered to pay the money • Payee- is the person who is entitled to recive money from the bank 5 possible complications Postdated cheque • Is dated in the future • Only allows the person receiveing payment to wait till date cannot be paid beofre Staledated cheque • The payee does not seek payment within a reasonable time • Banks do not honor cheques that is presented more than 6 months after date that appears on it Overdrawn cheque • When the bank account does not hold enough money to satisfy it completely • Non suffient funds are fined to account Countermanded cheque • Occurs when a customer orders a bank to refuse payment on a cheque • Stop payment order • Will not accept a countermad unless the person is there in person and the cheque is fully described • Many bank contracts include a term that allows the bnak to debit an account if made in mistake, otherwise bank may have to sue the payee if it wants to recover the payment Certified cheque • Occurs when a drawee bank promises to honour the cheque • Can be certified by a payee or holder • Bank owes obligation only to its own customer but when it certifies cheque it owes the other an obligation • Certification means cheque cannot be countermanded Bills of exchange • Is created when one person orders another person to pay a specific amount to a rd 3 person • Bill of exchange may be drawn on a bank or anyone else • Figure 14.2 bill exchange 329 • Acceptance- occurs when the drawee promises to pay a bill • Is like a cheque not supportable without consideration • Bill of xchange may be payable on demand in which case it is called a Demand draft • Bills mostly used for international trade between large business Promissory note • Is created when one person gives another person a written promise to pay a specific amount of money • Person intended to receive money is called payee and who creates it is cal
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