Negotiable Instruments Act, 2034: notes, bills and cheques

Overview

The Negotiable Instruments Act, 2034 (Act No. 26 of 2034, royal seal 18 Poush 2034) defines negotiable instruments and regulates them so that banking business runs in an orderly way. The consolidated text lists four amending Acts. The latest, the Banking Offence and Punishment (Second Amendment) Act, 2082, repealed s.107A, which used to punish cheque dishonour. That matter is now dealt with under the Banking Offence and Punishment Act, 2064.

The three instruments (s.2)

Parties

• Drawer: the person who writes or draws the bill.
• Drawee: the person directed to pay.
• Payee: the person named to receive payment.
• Holder: a person who has received the instrument in his own name and is entitled to the amount.
• Holder in due course: for a bearer instrument, the person lawfully entitled to it; for an order instrument, the payee or endorsee. He must have acquired it before maturity and without sufficient reason to believe that the transferor's title was defective. A holder who derives title from a holder in due course has the same rights (s.33).

General rules worth memorising

• An ambiguous instrument may be treated by the holder as either a note or a bill (s.3).
• If no time of payment is stated, it is payable on demand (s.5).
• If figures and words differ, the amount in words prevails (s.6).
• If the due date is a public holiday, the instrument falls due on the next day (s.10).
• Anyone competent to contract can be a party; where a minor is a party, all parties except the minor are liable (s.11).
• A bank must pay a properly drawn cheque when the drawer has enough funds, and must compensate for wrongful refusal (s.16).

Endorsement and negotiation

• Endorsement is signing on the face or back of the instrument, or on an attached paper, to negotiate it.
• General endorsement: signature only. Special endorsement: payment directed to a named person or his order. A holder may convert a general endorsement into a special one (s.31).
• Bearer instruments pass by delivery; order instruments need endorsement plus delivery (s.29).
• An endorsement for part of the amount cannot be negotiated (s.36).

Presentment and payment

• A cheque must first be presented to the drawee bank before any claim is made against the drawer (s.47).
• A drawee may ask for time to consider acceptance; the holder gives two days, excluding public holidays (s.41).
• A bank is not bound to pay a cheque or draft that is not presented within six months of the date it was drawn (s.53).

Crossing (Chapter 8)

• General crossing: two parallel lines on the face, with or without words such as '& Co.' or 'not negotiable' (s.81). Paid only to a banker.
• Special crossing: the name of a banker on the face (s.82). Paid only to that banker or its agent.
• Account payee: credited only to the account of the named payee (s.85).
• The holder may cross an open cheque or add 'not negotiable'; the drawer may cancel a crossing (s.83).

Dishonour

• Dishonour is by non-acceptance (s.64) or non-payment (s.65).
• The holder must give notice of dishonour to the parties he wants to hold liable; a party not notified is discharged (s.66). No notice is needed to the maker, acceptor or drawee.
• Dishonour may be noted and certified by a notary public (s.71, s.72).
• A suit must be filed within five years of the cause of action (s.108).

Exam pointers

• Note is a promise, bill is an order, cheque is a bill on a bank payable on demand.
• Words beat figures; no date means payable on demand.
• Holiday due date shifts to the next day.
• Cheque validity for compulsory payment: six months.
• Limitation: five years.
• Section 107A is repealed; cheque dishonour now sits in the Banking Offence and Punishment Act, 2064.