Bill of Exchange PDF

3.1 BILL OF EXCHANGE 3.1.1 WHAT IS A BILL OF EXCHANGE? According to the bill of exchange act of 1990, 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...

3.1 BILL OF EXCHANGE 3.1.1 WHAT IS A BILL OF EXCHANGE? According to the bill of exchange act of 1990, 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 determinable future date, a sum certain in money to or to the order of a specified person or bearer. 3.1.2 Parties in a bill of exchange transaction Drawer: this is the maker of the bill (i.e. the person who writes or draws the bill), he is usually a seller or creditor who is entitled to receive money from the debtor. The drawer after writing the bill of exchange has to sign it to make it legal document. Drawee: this is the person on whom the bill is drawn, the drawee is usually a purchaser or debtor (i.e. the person directed to pay the stated sum on presentment of the bill). He is to accept the bill by signing on it, this makes it a legal document. He is not liable if he does not accept the bill Acceptor: this is the party who accepts the bill of exchange by signing on it, it is common for the drawee to also be the acceptor but there are rare cases where a third party may accept on behalf of the drawee. Payee: this is the person to whom the amount stated on the bill is payable. The payee may also be the drawer (i.e. if he holds the bill till maturity) or any other to whom the bill was endorsed (i.e. the holder in due course). Where the bill has being endorsed to a third party and the drawee defaults in the payment of the bill, the payee has a right of recourse to drawer until the bill is paid by the drawee. Endorser: this is a person who endorses a bill to another person by signing on its back, he may be the payee or to whom the bill has being previously endorsed. 3.1.3 Classification/ Types of Bills On the basis of period/time  Demand bill  Term Bill Demand Bills: these are bills that become payable upon presentment to the drawee (i.e. bills payable on demand. The demand bill has no maturity date or time for payment. They are also called sight Bills. Term Bill: these are bills payable after the expiration of a specified time period, the maturity period (i.e. the tenor of the bill) is usually stated on the bill On the basis of documentary backing Documentary bill Clean bill Documentary Bill:A documentary bill is one that is backed by trade documents such as a bill of lading, marine insurance policy, invoice and other documents in order to confirm the authenticity of trade transactions that took place between the buyer and seller. Documentary Bills are further subdivided into  D/A (Document against acceptance) Bill  D/P (Document against Payment) bill Clean Bill: A clean is a bill of exchange that is not accompanied by any trade document as evidence for authenticity of transaction. The interest rate is usually higher than documentary Bills. On the Basis Of purpose   Trade Bill  Accommodation Bill Trade Bill: Trade Bills are drawn for the purpose genuine trade transactions. (i.e. a bill drawn and accepted against the sale or purchase of goods on credit) Accommodation Bill: A bill drawn, accepted or endorsed without any considerations, such bills do not involve any sale or purchase of goods. They are meant for raising funds for one or both parties by discounting in the money market. ON THE BASIS OF PLACE  Inland bill  Foreign bill Inland bill: an Inland Bills is one whosethe parties are resident in the same country (i.e. the drawer, drawee, acceptor, payee, and endorsers are all resident in the same country) Foreign Bill: A foreign bill of exchange is one that is drawn in one coutry and accepted in another country, they are subdivided into Export Bills and Import Bills. Export bills are drawn by an exporter on a party outside Nigeria, while Import Bills are bills drawn on importers in Nigeria by exporters in another country. On the Basis of the Payee  Order bill  Bearer bill Order bill: An order bill is a bill payable to the individual whose name is written on it or to a third party by endorsement and delivery. Bearer Bill: this is a bill payable to any person who is legally in the possession of the bill as the maturity as at the maturity date of the bill. 3.1.4 ENDORSEMENT OF A BILL OF EXCHANGE This is the process of transferring a bill of exchange from one person to another such that the benefits written on the bill the becomes payable to the new holder, the process requires the current holder or his authorized agent to append his signature on the back of the bill, this is followed by the delivery of the instrument (i.e the transfer of the document) Types of Endorsement Blank Endorsement This type does not specify the name of the individual to whom it is endorsed, thereby making it a bearers bill, the endorser simply signs his name on the back of the bill. This kind of bill can be negotiated by delivery (i.e. the constructive or actual transfer of possession of the bill of exchange) Special endorsement: this type of endorsement carries the name(s) of the individual(s) to whom it is endorsed, it can be further negotiated to another person by endorsement and delivery Restrictive Endorsement: this type of endorsement carries the name(s) of the individual(s) to whom it is endorsed, it restricts the further negotiation of the with a third party. It limits the right of the endorsee to transfer ownership of the bill. Conditional Endorsement: this type of endorsement is dependent on the occurrence of certain event. However according to section 33 of the bill of exchange act “ 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 the condition has being fulfilled or not. 3.1.5 DISCHARGE OF BILL OF EXCHANGE A bill is discharged when all the orders it contains have been carried out. The discharge of bill releases the parties to a bill from liability. The following are ways through which a bill can be discharged: i. Where there is a payment in due course in due course by drawee or acceptor. ii. Where the drawee or acceptor becomes the holder of the bill at or after maturity, this is referred to as the principle of “negotiation back”.  iii. Where through merger the acceptor becomes the holder of the bill at or after maturity. iv. Where the holder or his authorized agent with the intention of discharging the bill cancels the name of the drawee. v. Where there are material alteration on the bill such as change of date, or amount payable without the consent of the liable party. vi. Where there is an express waiver or renunciation by the holder of the bill. 3.1.6 HOLDERS OF A BILL OF EXCHANGE Section 2 of the bill of exchange act 1990 defined the holder as “the payee or endorsee of a bill or note who is possession of it or the bearer thereof”. Holder for Value: this is a holder that has given a valuable consideration for the bill or note, sec tion 27(1) of the bill of exchange act states that a valuable consideration for a bill may be constituted by: (a) any consideration sufficient enough to support a simple contract; (b) an antecedent debt or liability and such a debt or liability is deemed whether the bill is payable on demand or at a future time Holder in due course: A holder in due course is one who has taken a bill, complete and regular on the face of it, before it was overdue, without notice that it had been previously dishonoured, in good faith and for the value, and 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. 3.2 CHEQUES 3.2.1 WHAT IS A CHEQUE? A cheque is a bill of exchange drawn on a banker and payable on demand. It is one of the commonest negotiable instruments in Nigeria. It can also be as an unconditional order in writing addressed by a customer to a bank/banker, signed by the customer issuing it, requiring the bank/banker to pay on demand or at a fixed determinable future date, a sum certain in money to or to the order of a specified person or bearer. 3.2.2 CHARACTERISTICS OF A CHEQUE A cheque should possess amongst other things the following attributes in order to ensure its payment:  Amounts in words and figure must correspond  It must be properly dated (i.e. the date must be current)  It must be properly signed by the drawer  Alterations must be confirmed by the drawer by signing such alterations  It must be signed by all the signatories if it is a company cheque  It must not be mutilated  The drawers account must be correctly specified 3.2.3 PARTIES TO A CHEQUE Drawer: this is the account holder, that is the person who issues and signs the cheque. Drawee: this refers to the banker/banker on whom the cheque is drawn, that is the party authorized to pay out the specified sum on presentment of the cheque. Payee: this is the party to whom the specified sum is to be paid, that is the part in whose benefit the cheque is issued. 3.2.4 TYPES OF CHEQUES 1. Open Cheques: An open cheque is one that is payable over the counter. Open cheques can easily be cashed, however open cheques are not a very safe method of payment as they can be stolen and easily cashed they are also susceptible to fraud 2. Crossed Cheques: this type of cheques have two parallel transverse lines drawn across its face, the lines drawn across the face of the bill signifies that the cheque is only payable through the bank and not payable over the counter. It is an indication that the drawee should pay the specified sum into the account of the payee,So as to minimize fraud and guard against loss that would result from unauthorized possession and cashing of the cheque. Types of crossing General crossing consist of two parallel transverse lines drawn across the face of the cheque with or without the words “and co”, “Not Negotiable” or “Not negotiable and Co” written on it. General crossing allows payment to be made through any bank. Special crossing consist of two parallel transverse lines drawn across the face of the cheque with words restricting its negotiability. Special crossing allows payment to be made through the particular bank specified on the cheque. Non-negotiable crossing: this does not imply that a cheque is not transferrable, cheques with non negotiable crossing are negotiable so long as their title is good. The holder of the cheque does not get a better title than the transferor had. Once the title of the transferor or endorser becomes defective the title of the transferee is also affected hence the transferee cannot claim the right of an holder in due course. Account payee crossing: an account payee crossing implies that the cheque can only be collected for the account of the payee specified in the cheque, the banker can disregard the instruction at his only own risk and liability. 3.Order and Bearer’s Cheque: a bearers cheque is a cheque that is payable to the bearer ( i.e. the individual who presents it before the bank), it can be transferred by mere delivery. While an order cheque is one which the drawer or a subsequent specifies the individual to paid, it however does not restrict the transferability of the cheques. 3.2.5 Terminologies associated with cheque transactions Stale Cheques: A cheque is said to be stale when it is presented after the expiration of the date specified on it. It implies that the cheque has been in circulation for a considerable period of time without being presented to the bank at the appropriate time for payment. In other words stale cheques are cheques whose validity period has elapsed or expired. Post-Dated cheques: A post dated cheque is one that is issued to the payee before the date stated on it, it is a cheque that is payable at a specified future date. It should be noted on the part of the banker that post dated cheques should not be cashed before the due date Dishonoured cheques: a cheque is said to be dishonoured when it is presented to the bank for payment but the bank declined payment for certain reasons, which may include: irregular signature, insufficient balance etc. Countermand Countermand written order, signed by the drawer (i.e. the customer) that is used by a drawer to notify the drawee (i.e. the bank) to stop the payment of a cheque, he had previously issued. The bank ensures the order is properly signed before taking action. 4.0 SUMMARY Negotiable instruments are of various types and they all aid the processes of making transaction easy. They have flexibility and transferability features that most often involves two or three parties. They provide a convenient vehicle for transactions. 5.0 CONCLUSION Negotiable instruments like cheques and bill of exchange have helped to simplify transactions and settlement of debt, holders of negotiable instruments can utilize these avenues and arrangement to make economic payment system to be flexible, efficient and effective. 6.0. Tutor- marked Assignment o Define bill of Exchange ? o Mention and explain the types of cheques known to you o List and explain the types of bills you know and how they work o Who is a holder? For value? In due course? 7.0 References.