University of Lusaka

School of Law
-
Joseph Chirwa
Advocate of the High Court for Zambia / Course Lecturer
 Prescribed and
Recommended Readings
1 . Dudley Richardson, A Guide to Negotiable Instruments
(LexisNexis UK)
 Recommended Statutes
1. Negotiable Instruments Act, 1881(Not Applicable in
Zambia but just for academic purposes)
2. Bills of Exchange Act, 1882
3. Cheques Act, Cap 424 of the Laws of Zambia
 NEGOTIABLE INSTRUMENTS
 These are instruments the transfer of which to a
transferee who takes in good faith and for
value passes a good title, free from any defects
or equities affecting the title of the transferor.
 According to section 13 of the Negotiable
instruments Act of 1881, negotiable instruments
means “promissory note, bill of exchange,
or cheque, payable either to order or
bearer.”
 Thus, the most common negotiable instruments
are Bills of Exchange, Cheques and Promissory
Notes.
 NATURE OF NIs
 When an instrument is by custom of the trade transferable, like cash,
by delivery and is also capable of being sued upon by the person
holding it pro tempore (for the time being; for the present only) then it
is entitled to the name of a negotiable instrument and the property in it
passes to a bona fide transferee for value, although the transfer may
not have taken place per Blackburn, J in Crouch v Credit Froncier of
England Ltd (1873) LR 8 QB 374.
 An NI is a chose in action, the full and legal title to which is
transferable by mere delivery of the instrument with the result that
complete ownership of the instrument and all the property it represents
passes free from equities to the transferee, providing the transferee
takes the instrument in good faith for value.
 Chose in action is a right of proceeding in a court of law to procure the
payment of a sum of money, e.g. in a bill of exchange , policy of
insurance, etc.
 A document can only be titled PN if it contains an undertaking to pay
(Lombard Banking Ltd v Vithaldas Gorhandas and Anr (1960) EALR 345)
Cont’d..
 However, many other documents are also
recognised as NIs on the basis of custom and
usage, like Treasury Bills and Share Warrants –
provided they possess the features of
negotiability.
 Negotiability is a characteristic of a document
(such as a check, draft, bill of exchange) that
allows it to be legally and freely (unconditionally)
assignable, saleable, or transferable.
 It allows the passing of its ownership from one
party (transferor) to another (transferee) by
indorsement or delivery.
 PROMISSORY NOTES
 This is an unconditional promise in writing
made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed
or determinable future time, a sum of money
certain to, or to the order of, a specified person
or to a bearer (section 83 (1) of Bills of Exchange
Act).
 There are generally two parties to a PN:

I. Drawer – the person who makes the note and

promises to pay the amount stated therein.
II. Payee – the person to whom the amount is
payable.
 FEATURES OF PNs
I. It must be in writing, duly stamped by its maker.
II. It must contain an undertaking or promise to pay as
mere acknowledgement of indebtedness is not enough.
III. The promise to pay must be unconditional.
IV. It must contain a promise to pay money only.
V. The parties to a PN (maker and payee) must be
certain.
VI. It must be payable on demand or after a certain
date.
VII. The sum payable mentioned must be certain or
capable of being made certain – it means that the sum
payable must be in figures or may be such that it can
be calculated.
 BILLS OF EXCHANGE
 This is 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 or
determinable future time a sum certain in money
to or to the order of a specified person, or to the
bearer (section 3 of BoE Act).
 An instrument that does not comply with these
conditions, or which orders any act to be done in
addition to the payment of money, is not a BoE
(section 3 (2))
 Hamilton v Spoottswoode (1849) 4 Exch. 200
 PARTIES TO BoE
 There are three parties to a typical BoE namely:
I. Drawer – the person who makes the order for
payment.
II. Drawee – the person to whom the order to pay
is made. He is generally a debtor of the drawer,
e.g. Bank.
III. Payee – the person to whom the payment is to
be made.
 The drawer can also draw a bill in his own name

thereby he himself becomes the payee.

 See section 2 of the Act for other possible parties.
 TYPES OF BoE
I. Time Bill – a bill where a time period is
mentioned.
II. Demand Bill – a bill to be made payable
on demand.
 Other Considerations
 A bill is not valid by reason that:
I. It is not dated.
II. It does not specify the value given, or that
any value has been given therefore.
III. It does not specify the place where it is
drawn or the place where it is payable.
 It should be noted that all cheques are

BoEs.
 NATURE OF BoE
I. It must be an unconditional order (Hamilton case
above; Bavin and Sims v London and SW Bank
(1900) 1 QB 270; section 3).
II. It must be in writing (section 2).
III. It must be addressed by one person to another
(section 6 and section 5 for exceptions).
IV. It must be signed by the person giving it, i.e. drawer
(section 23).
V. It must be payable on demand or at a determinate
future time (section 10).
VI. It must require payment of a certain sum in money.
VII. Order of a special person or bearer (section 3 (2) and
section 9 (1)).
 CAPACITY
 Capacity is one of the three requisites to
liability on a BoE, the other two being
signature and delivery.
 Capacity under the BoE is the same as that

of the general law of contract (section 220.

 HOLDER OF A BILL
 Holder means “the payee or indorsee of a
bill or note who is in possession of it, or
the bearer thereof.” (Section 2; Daniel Meyer
(Export) Ltd v Makali Cycle Mart (1956) EALR
26.
 The holder can establish his ownership by:

I. Showing his title to the bill.

II. Bill must have been negotiated to him.
III. If bill is payable to holder, he must not only
get permission of the bill, but must also
obtain indorsement of previous holder.
 THREE CLASSES OF HOLDERS
UNDER BoE ACT
1. Holder - means the payee or indorsee of a
bill or note who is in possession of it, or the
bearer thereof (section 2).
2. Holder for Value – means a holder who has
given or is deemed to have given valuable
consideration for a bill (section 27).
3. Holder in Due Course - means a holder
who has taken the bill, complete and regular
on the face of it, before it became overdue
or that he had no notice of any defects
(section 29).
 RIGHTS OF THE HOLDER
(S.38)
1. He may sue and be sued on the bill in his
own name.
2. Holds bill free from any defects if holder in
due course.
 Jones v Waring and Gilow (1926) AC 670
 N.S. Rawal v Rattan Singh (1956) EALR 453
 CHEQUES
 According to section 73 of the BoE Act Cheque is a
“bill of exchange drawn on a banker payable
on demand.”
 A cheque is an order by the account holder of the
bank directing his banker to pay on demand, the
specified amount, to or to the order of the person
named therein or to the bearer.
 The person who draws the cheque is known as the
drawer and the banker on whom it is drawn is
called the drawee and the person to whom it is
payable is known as the payee.
 Cheques Act, Cap 424
 FEATURES OF A CHEQUE
1. It must be in writing and duly signed by the
drawer.
2. It contains an unconditional order.
3. It is issued on a specified banker only.
4. The amount specified is always certain and
must be clearly mentioned both in words and
figures.
5. The payee is always certain.
6. It is always payable on demand.
7. It must bear a date otherwise it is invalid and
shall not be honored by the bank.
 TYPES OF CHEQUES
1. Open cheque – a cheque is ‘open’ when it is
possible to get cash over the counter at a bank.
The holder can therefore, receive payment over
the counter; deposit the cheque in his own
name; or pass it to someone else by signing on
the back of the cheque.
2. Crossed cheque –it cannot be paid over the
counter and it must be presented for payment
by the bank. It is only credited to the payee. It is
crossed by drawing two transverse parallel
lines across the cheque, with or without the
writing ‘account payee’ or ‘not negotiable’.
 WHY CROSS CHEQUES?
1. To guard against fraud.
2. To safeguard against loss.
3. To safeguard against theft.
 DUTIES OF A BANKER
 Duty to honor cheques.
 Duty to secrecy and confidentiality.
 Duty to comply with instructions.
 Duty to act as an agent of customer.
 Rolin v Stewart
 Trust Bank of Africa v Marques
 Tounier v National Provincial Bank of
England
 Sections 2, 3, 4 and 5 of Cheques Act and

section 75 of BoE Act.

 DUTIES OF CUSTOMER
1. Duty to exercise reasonable care in
drawing cheques on his banker (London
JSB v Macmillan and Arthur (1918) AC
777).
2. Duty to disclose forgeries (Greenwood v
Martins Bank Ltd (1932) 1 KB 371).
 DIFFERENCE BETWEEN BoE
AND PN
1. A PN contains an unconditional promise while a
BoE contains an unconditional order.
2. In a PN there are two parties (drawer and payee)
while in a BoE there are three parties (drawer,
drawee and payee).
3. A PN is made by the debtor while a BoE is made
by the creditor.
4. In a PN acceptance is not required while in a BoE
acceptance by the drawee is a must.
5. The liability of the drawer is primary and
absolute in a PN while in a BoE it is secondary
and conditional upon non-payment by the drawee.
 DISTINCTION BETWEEN A
CHEQUE AND A BoE
1. A cheque is only drawn on a banker while a
BoE can be drawn on any body including a
banker.
2. In a cheque the amount is always payable on
demand while in a BoE the amount is payable
on demand or after a specified period.
3. A cheque can be crossed to end
negotiability while a BoE cannot be crossed.
4. Acceptance is not required in a cheque while
acceptance is a must in a BoE.
???QUESTIONS???

THE END