Legal Effect of Drawing or Indorsing a Bill

Form of a Bill of Exchange

• A bill of exchange must be unconditional, in writing, signed by the drawer, and payable on demand or at a fixed or determinable future time.
• The amount must be certain in money.
• If the document does not satisfy these requirements, 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.

Unconditional Order

• An unconditional order means that there must be no qualification which would make payment uncertain or give rise to cumbersome inquiries.
• Example: A bill that specifies "pay C when he passes his exams" would not be valid, even if C did pass his exams.
• Death is not uncertain, although the time at which it happens, of course, is; therefore, an instrument that says "pay C's estate on C's death" would be valid.

Payable on Demand

• A bill is payable on demand, meaning it is payable 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.

Payable at a Fixed or Determinable Future Time

• A bill may be payable at a fixed period after date or sight.
• If it is after sight (e.g., 90 days after sight), it becomes mature and payable only on the day which is 90 days after acceptance or protest for non-acceptance.
• If it is payable at a fixed period after an event which is bound to happen (even if the date is uncertain), it is valid.

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.

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.
• A bill payable to bearer is negotiated by delivery.
• A bill payable to order is negotiated by the endorsement of the holder completed by delivery.
• A person who acquires a negotiable instrument for value and in good faith is entitled to ignore all previous claims to the document.

Holder in Due Course

• A holder in due course must not have any notice of any 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.
• Such a defect will not affect a holder in due course who takes the bill without notice of the dishonour.

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.
• Mere negligence, however gross, will not of itself amount to lack of good faith, but it may be evidence of notice.

Notice

• Notice may be particular (express) or general.
• Particular notice is where the holder had notice of the particular facts avoiding the bill.
• 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.

Promissory Note

• A promissory note is 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.
• For cases discussing the characteristics of a promissory note, see Sabblah v.Tawiah GLR 145 and Directors of Orthodox Secondary School of Peki v.Tawlma-Abels 1 GLR 419.

Certificates of Deposit

• A certificate of deposit 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.

Cheques

• A cheque is a bill of exchange drawn on a banker payable on demand.
• Section 72 of Act 55 provides that a cheque is a bill of exchange drawn on a banker payable on demand.