Guy Harley

1

• Guy Harley
• Bachelor of Law (University of Adelaide 1978)
• Barrister and Solicitor in Adelaide for 18 years
• Master of Business (eBusiness) (University of SA
  2001)
• IT Directorate, University of Western Sydney
• Contact Information
• [phone]
• guy_at_harley.net.au
• Web Site
• http//www.harley.net.au

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• Negotiable Instruments

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• Negotiable Instruments
• Enables a creditor to transfer a right to be paid
  to a third party
• Holder of negotiable instrument can seek payment
  directly from debtor
• Third party may transfer negotiable instrument to
  another

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• Negotiability
• System of payment designed to eliminate
• the difficulties and risks involved in having
  large sums of cash, gold or silver always and
  immediately available and
• problems with transporting these items over what
  were often dangerous distances.
• Grew out of Merchant practice
• Later codified in statute (Bill of Exchange Act).

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Payment
Seller
4
3
1
Clearing House
Transfer Bill
Bill
Accept
2
Payment(on due date)
Buyer
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6
Payment
Payment
Seller
Clearing House
Transfer Bill
Clearing House
Transfer Bill
Bill of Exchange
Payment
Buyer
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• Characteristics
• Title capable of transfer by mere delivery (or
  where payable to order, by endorsement and then
  delivery)
• No requirement for notice of transfer to be given
  to person liable.
• Holder can sue in his/her name.
• Holder who takes in good faith and for value
  takes it free of defects and may obtain better
  title than transferor.
• A presumption of bona fides and consideration.

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• Transferable
• All negotiable instruments transferable
• bills of exchange
• Cheques
• bearer debentures
• promissory notes
• some bonds

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• Transferable (cont.)
• Not all things transferable are negotiable
• share certificates
• money orders
• IOUs

10

• Financing
• As well as payment method, extensive use in
• liquidity management (ability to discount) and
• financing (commercial bill acceptance)

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• Commercial Bill Acceptance Facility
• KD Morris Sons Ltd (In Liq) v. Bank of
  Queensland Ltd (1980) 146 CLR 165
• In 1973 Keith Morris Construction Ltd group was
  Queenslands largest building contractor. A
  subsidiary KD Morris Sons Pty Ltd needed 2m.
  Bank of Queensland and Tricontinental agreed to
  provide Co with commercial bill acceptance
  facilities of 1m each.
• The Company would draw bills payable in 180 days
  which it could immediately discount with
  Tricontinental providing the Company with cash to
  the value of the bills less discount. Each 180
  days the bills would be rolled over, meaning
  new bills would take the place of those retired
  on maturity.

12

• Commercial Bill Acceptance Facility
• Method had advantage to Bank that it involved no
  actual advance of funds. Instead the money came
  from the discounter, Tricontinental and
  ultimately other operators in the commercial bill
  market to whom Tricontinental might in turn
  discount the bills.
• The Bank supplied ready acceptability of the
  Companys bills in the market place i.e. credit
  enhancement. It added its name.
• In this case, security was required (land) but
  not always so if credit rating (often dependent
  on strong cash flow and debt service ability)
  sufficient.

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• Types of Negotiable Instrument
• Bill of Exchange
• Cheque
• Promissory note

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• Bill Of Exchange
• Can be drawn on anyone
• Often used for international transactions
• Does not use crossings
• Accepted by party on whom drawn

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• A Cheque is
• Drawn only on a financial institution
• Mostly for commercial transactions within a
  country
• Payable on demand
• Financial institution pays because of
  banker/customer relationship rather than
  acceptance

16

• Promissory Note
• Bilateral legal relationship and not tripartite
• Unconditional promise rather than unconditional
  order

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• Cheques
• Most common form of Bill of Exchange
• Now outside Bills Of Exchange Act
• Originally covered by Bills of Exchange Act
• Now covered by Cheques Act 1986

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• Definition of a Cheque (s. 10)
• A cheque is an UNCONDITIONAL ORDER IN WRITING
  that
• Is addressed by a person to another person (being
  a FINANCIAL INSTITUTION)
• Is signed by the person giving it and
• Requires the FINANCIAL INSTITUTION to pay ON
  DEMAND A SUM CERTAIN in money
• An instrument that does not comply with
  subsection (1) or that orders any act to be done
  in addition to the payment of money, is not a
  cheque.

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• Definition of a Cheque
• Must be unconditional
• Must be signed
• A person who signs adopts all the writing on the
  cheque
• Bondina Ltd v Rolloway Shower Blinds Ltd 1986 1
  WLR 517
• Must be mandatory and not just an authorisation
  or request to pay (s11)
• Order to pay on a contingency is not
  unconditional (s12)

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• Definition of a Cheque (cont.)
• Must be addressed to a financial institution
  (s13)
• Must require payment on demand (s14)
• Must be to pay a certain sum of money
• Use of rates of exchange permissible (s15)
• Merely setting out a formula is not enough if
  precise sum cannot be calculated by reference to
  the cheque (Rosenhain v Commonwealth Bank of
  Australia (1922) 31 CLR 46)

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• Cheques Definitions
• Financial institution (s13)
• Order (s11)
• Unconditional order to pay (s12)
• Order addressed to a financial instituion (s13)
• Order to pay on demand (s14)
• Order to pay a sum certain (s15)

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• FINANCIAL INSTITUTION means
• The Reserve Bank of Australia or
• An authorised deposit-taking institution) under
  the Banking Act 1959 or
• An FIC institution or
• A State Banks or
• A Foreign Bank

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• FIC INSTITUTION means
• A building society or
• A credit union or
• A special services provider
• Under a Financial Institutions Code

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• Order to pay (s11)
• An order to pay must be more than an
  authorization or request to pay.

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• Unconditional order to pay (s12)
• An order to pay on a contingency is not an
  unconditional order to pay and the happening of
  the event does not make the order an
  unconditional order to pay.
• An order to pay shall not be taken not to be an
  unconditional order to pay by reason only that
  the order is coupled with either or both of the
  following
• An indication of a particular account to be
  debited by the financial institution to which the
  order is addressed
• A statement of the transaction giving rise to the
  order

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• Addressed to a Financial Institution (s13)
• An order to pay is not addressed to a financial
  institution unless
• The order is addressed to a financial institution
  and to no other person
• the order is addressed to one financial
  institution only and
• the financial institution is named, or otherwise
  indicated with reasonable certainty, in the
  instrument containing the order.

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• Addressed to a Financial Institution (s13)
• An order to pay may be an order to pay addressed
  to a financial institution notwithstanding that a
  person other than the financial institution on
  which the instrument containing the order is
  drawn, the payee or the drawer is specified in
  the instrument.

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• Order to Pay on Demand (s14)
• Subject to subsections (2) and (3), an order to
  pay is an order to pay on demand if
• the order is expressed to require payment on
  demand, at sight or on presentation or
• no time for payment is expressed in the
  instrument containing the order.

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• Order to Pay on Demand (s14) (cont.)
• Subject to subsection 16(3), an order to pay is
  not an order to pay on demand if the order is
  expressed to require, or requires by implication,
  payment otherwise than on demand, at sight or on
  presentation.

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• Order to Pay on Demand (s14) (cont.)
• Without limiting the generality of subsection
  (2), an order to pay is not an order to pay on
  demand if the order is expressed to require, or
  requires by implication, payment only
• at or before a particular time or
• where the instrument containing the order is
  presented at or before a particular time.

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• Order to Pay a Sum Certain (S15)
• Subject to subsection (2), an order to pay is not
  an order to pay a sum certain unless the sum
  ordered to be paid is specified with reasonable
  certainty in the instrument containing the order.
• Where more than one sum is expressed to be
  payable in an instrument containing an order to
  pay, the lesser or least, as the case may be, of
  the sums so expressed to be payable shall be
  taken to be the only sum ordered to be paid by
  the instrument.

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• Order to Pay a Sum Certain (S15)
• An order to pay may be an order to pay a sum
  certain notwithstanding that the order requires a
  sum to be paid according to a rate of exchange
  specified in, or to be ascertained as directed
  by, the instrument containing the order.

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• Order to Pay a Sum Certain (S15)
• Where an instrument contains
• an order to pay a specified sum and
• an order to pay not more than a specified sum
• the instrument shall be taken to require payment
  of the lesser of the sums so specified.

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• Date
• A cheque is deemed to have been drawn on the date
  appearing on it (s16) but is not invalid if
• No date or
• Antedated or
• Post dated

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• Incomplete Cheques
• If a cheque is signed but otherwise blank in one
  or more fields then
• Person to whom cheque is delivered is presumed to
  have authority to complete the cheque in any way
  they deem fit (s18(1))

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• Incomplete Cheques
• Holder in due course has no claim against drawer
  or persons who indorsed cheque prior to it being
  filled in unless
• Completed within a reasonable time and
• In accordance with the limits of any authority
  given (s18(2))
• Holder in due course has a valid claim against
  person who completed cheque and indorsees after
  cheque completed

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• Terms
• Drawer Indorsee - Holder in due Course

Claims
Cheque
Cheque
Payment
Payment
Drawer
Indorsee
Holder in due course
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• Specification of Payee or Indorsee (S19)
• A person shall not be taken to be specified in a
  cheque as payee or indorsee unless the person
• Is named or otherwise indicated with reasonable
  certainty, in the cheque and
• Is not a fictitious or non-existing person

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• Specification of Payee or Indorsee (S19)
• Where the holder for the time being of an office
  is specified in a cheque as payee or indorsee,
  the person who is the holder for the time being
  of the office shall be taken to be named in the
  cheque as payee or indorsee, as the case may be.

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• NOT a Payee or Indorsee
• When
• A fictitious person
• A non-existing person
• Reference is too obscure or uncertain