Kinh tế học - Chapter 5: Negotiable instruments

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Copyright © 2000 McGraw-Hill AustraliaNegotiable instrumentsChapter 51Copyright © 2000 McGraw-Hill AustraliaNegotiable instrumentA contract that can be transferred from one person to another. e.g. Cheques Bills of exchange2Copyright © 2000 McGraw-Hill AustraliaNemo dat ruleYou cannot transfer better title to goods than what you already have. Exception: Negotiable instruments - can be transferred from one person to another and that person receives good title, even if the transferor did not have good title. 3Copyright © 2000 McGraw-Hill AustraliaNegotiabilityAssignability (transferability): Capable of being transferred from one person to another.Negotiability: Assignable and allows good title to pass to the transferee.4Copyright © 2000 McGraw-Hill AustraliaBill of exchange An unconditional order In writing Addressed by one person (drawer) to another (the drawee) Signed by the person giving it (the drawer) Pay on demand, or at a fixed or determinable future time Involves a certain sum of money To the order of a specified person, or to bearer 5Copyright © 2000 McGraw-Hill AustraliaBill of exchangeAdvantagesProof of debtEasily transferredSafely transferred6Copyright © 2000 McGraw-Hill AustraliaParties to a bill of exchange Drawer: Person responsible for creating bill (creditor).Drawee: Person to whom bill addressed (acceptor).Payee: Person to whom payment is to be made.Endorser: Person who transfers rights of payment.Endorsee: Person to whom bill is transferred.Bearer: Person in possession of bearer bill.7Copyright © 2000 McGraw-Hill AustraliaParties to a bill of exchange - holdersHolder: Person in possession of a bill “to bearer” wPayee or wEndorsee.Holder for value: Person in possession of bill for which value has been given.Holder in due course: Person in possession of bill - that is complete and regular - taken in good faith and for value - no notice of any defect of transferor - no notice of previous dishonour. 8Copyright © 2000 McGraw-Hill AustraliaTypes of bill of exchangeInland billsForeign billsAccommodation bills9Copyright © 2000 McGraw-Hill AustraliaUses of a bill of exchangePayment of importsPayment of exportsAvoidance of transfers of cashCan be discounted 10Copyright © 2000 McGraw-Hill AustraliaLiability of partners on a bill of exchangeHolder has right against acceptordrawerprior endorsers11Copyright © 2000 McGraw-Hill AustraliaAcceptanceGeneralQualifiedConditionalPartialLocalQualified as to timeQualified as to acceptance 12Copyright © 2000 McGraw-Hill AustraliaNegotiation of a bill of exchangeWhen transferred from one person to another: Bearer bill - on delivery Order bill - endorsement and on delivery Payable bill - endorsement by payee and delivery13Copyright © 2000 McGraw-Hill AustraliaEndorsement of a bill of exchangeElements: - Endorsement written - Endorser signsBlank endorsement: No endorsee named (Payable to bearer)Special endorsement: Endorsee namedRestrictive endorsement: Cannot be transferred to anyone elseConditional endorsement: Contains a conditionSans Recours endorsement: Endorser not liable if dishonoured14Copyright © 2000 McGraw-Hill AustraliaDishonour of a bill of exchange On presentation: - non-acceptance - non-payment 15Copyright © 2000 McGraw-Hill AustraliaDischarge of a bill of exchangePayment in due courseBill is paid by acceptorAcceptor becomes holderBill is cancelledHolder waives rights under the billBill is altered 16Copyright © 2000 McGraw-Hill AustraliaPromissory noteUse: Loan Transactions involving two people only - w the maker w the payee Unconditional promise By one person to another Signed by the maker On demand or at a fixed or determinable future timeCertain sum of money17Copyright © 2000 McGraw-Hill AustraliaCheques (Cheque Act 1986 (Cwlth)) Allows cheques to be drawn on financial institutionsContract involving cheques:honour customer’s cheque Creditor Debtor Bank charges Customer Cheque holder18Copyright © 2000 McGraw-Hill AustraliaCheque w Unconditional order w Addressed to another person (financial institution) w Signed by person giving cheque w Order to pay on demand w Order to pay a certain sum in money 19Copyright © 2000 McGraw-Hill AustraliaDifferences between a bill of exchange and a chequeBill of exchangeChequePayable on demand, or at a fixed or determinable future date Payable on demand Drawn on anyone Drawn on a financial institution Can’t be crossed (always negotiable) Can be crossed Continuing security Presented for payment within a reasonable timeObligation from acceptance of bill Ongoing relationshipSubstantial trading transactions Day-to-day transactions20Copyright © 2000 McGraw-Hill AustraliaParties involvedDrawer - Person who writes the cheque.Drawee - Bank on which cheque is being drawn.Payee - Person to whom cheque is being paid.21Copyright © 2000 McGraw-Hill AustraliaPresentation of chequesLiability rests with drawer or endorser.Drawee institution - Institution upon which the cheque is drawn.Collecting institution - Institution at which the cheque is presented.22Copyright © 2000 McGraw-Hill AustraliaTypes of chequeOrder cheques One or more person is specified on the cheque as payee or endorsee.Negotiated by endorsement and delivery.Bearer cheque (converted to order cheque by deleting “or bearer”)No person is specified in the cheque as payee or endorsee, or the words “to bearer” appear on the cheque.Negotiated by delivery.Crossed chequesSpecific direction to the drawee financial institution not to pay the cheque over the counter.23Copyright © 2000 McGraw-Hill AustraliaCrossed cheques NOT NEGOTIABLETo be paid into an account Assignable and negotiable if: - taken in good faith - for value - not aware of any defect of title - good title passes regardless of what title the giver hadAssignable - title the giver had (nemo dat rule applies)24Copyright © 2000 McGraw-Hill AustraliaPayment in due courseDishonour of cheque25Copyright © 2000 McGraw-Hill AustraliaDishonour of chequesRevocation by customer of institution’s authorityInsufficient funds in accountStop payment orderAccount subject to garnishee orderCustomer’s deathCustomer’s bankruptcyMaterial alteration of a cheque26Copyright © 2000 McGraw-Hill AustraliaRevocation of financial institution’s authority to pay chequesCountermand of payments (stop payment order) - Clear - Communicated to responsible official - Given before cheque presented for paymentNotice of incapacity - Notice of drawer’s mental capacityNotice of drawer’s death - Unless notice not received from entitled person within 10 days of drawee bank becoming aware of drawer’s death.27Copyright © 2000 McGraw-Hill AustraliaCapacity to incur liabilityCheque drawn, issued or endorsed by a person without capacity will not place liability on the person for the cheque. 28Copyright © 2000 McGraw-Hill AustraliaSignature on the chequeTo be valid, cheque must be signed by drawer, unless: - Estoppel - Ratification - Agent29Copyright © 2000 McGraw-Hill AustraliaStale chequeDate on cheque more than 15 months earlier.30Copyright © 2000 McGraw-Hill AustraliaEndorsement of chequesWrittenPlaced on chequeSigned by endorser(s)Name misspelt – endorser signs wrong name and right name e.g. signature and name of endorseeEndorsements in order of appearance on cheque31Copyright © 2000 McGraw-Hill AustraliaHolder in due courseHas right to:Present cheque for paymentNegotiate itGive a valid dischargeSue on chequePay Dishonour32Copyright © 2000 McGraw-Hill AustraliaHolder in due courseDefinition:Cheque negotiated by holderCheque complete and regular on face of itCheque not staleCheque not crossed “not negotiable”Cheque taken in good faith for valueCheque without notice of dishonour or defect of transferor’s title i.e. holder has legal right to payment33Copyright © 2000 McGraw-Hill AustraliaDischarge of liabilitiesPayment in due course34Copyright © 2000 McGraw-Hill AustraliaLiability of parties to a cheque Liability of drawer: For value of cheque at time of issue Liability of endorser: To holder or subsequent endorsers only Liability of “strangers”: A person who is willing to “back the cheque” is liable as an endorser. Liability on dishonour: Sum ordered to be paid plus amount of interest.35Copyright © 2000 McGraw-Hill AustraliaDuties of drawee (financial institution) and drawerRespective parties will not be liable if duties followed.To act in good faith and without negligenceCollecting institution: to act in good faith and without negligence.36Copyright © 2000 McGraw-Hill AustraliaDuties of drawee (financial institution) and drawer37Copyright © 2000 McGraw-Hill Australia