Transcript Fundamentals of Law (BL502)

Commercial Law
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
 (02) 4570 1116
 [email protected]
 Web Site
 http://www.harley.net.au
Commercial Law
Negotiable Instruments
Commercial Law
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
Commercial Law
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).
Commercial Law
Payment
Seller
4
3
1
Bill
Transfer
Bill
Clearing
House
Accept
2
Buyer
5
Payment
(on due date)
Commercial Law
Payment
Seller
Bill of
Exchange
Transfer
Bill
Payment
Clearing
House
Payment
Buyer
Transfer
Bill
Clearing
House
Commercial Law
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.
Commercial Law
Transferable
 All negotiable instruments transferable
 bills of exchange
 Cheques
 bearer debentures
 promissory notes
 some bonds
Commercial Law
Transferable (cont.)
 Not all things transferable are negotiable
 share certificates
 money orders
 IOUs
Commercial Law
Financing
 As well as payment method, extensive use in
 liquidity management (ability to discount) and
 financing (commercial bill acceptance)
Commercial Law
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
Queensland’s 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.
Commercial Law
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 Company’s
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.
Commercial Law
Types of Negotiable Instrument
 Bill of Exchange
 Cheque
 Promissory note
Commercial Law
Bill Of Exchange

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
Can be drawn on anyone
Often used for international transactions
Does not use crossings
Accepted by party on whom drawn
Commercial Law
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
Commercial Law
Promissory Note
 Bilateral legal relationship and not tripartite
 Unconditional promise rather than unconditional
order
Commercial Law
Cheques

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
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
Commercial Law
Definition of a Cheque (s. 10)
1) A cheque is an UNCONDITIONAL ORDER IN
WRITING that;
a) Is addressed by a person to another person (being a
FINANCIAL INSTITUTION)
b) Is signed by the person giving it and
c) Requires the FINANCIAL INSTITUTION to pay ON
DEMAND A SUM CERTAIN in money
2) 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.
Commercial Law
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)
Commercial Law
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)
Commercial Law
Cheques – Definitions
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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)
Commercial Law
FINANCIAL INSTITUTION means:
a) The Reserve Bank of Australia; or
b) An authorised deposit-taking institution) under
the Banking Act 1959; or
c) An FIC institution; or
d) A State Banks; or
e) A Foreign Bank
Commercial Law
FIC INSTITUTION means
• A building society; or
• A credit union; or
• A special services provider
Under a Financial Institutions Code
Commercial Law
Order to pay (s11)
 An order to pay must be more than an
authorization or request to pay.
Commercial Law
Unconditional order to pay (s12)
1) 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.
2) 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:
a) An indication of a particular account to be debited by
the financial institution to which the order is
addressed;
b) A statement of the transaction giving rise to the order
Commercial Law
Addressed to a Financial Institution (s13)
1) An order to pay is not addressed to a financial
institution unless:
a)The order is addressed to a financial
institution and to no other person;
b)the order is addressed to one financial
institution only; and
c) the financial institution is named, or otherwise
indicated with reasonable certainty, in the
instrument containing the order.
Commercial Law
Addressed to a Financial Institution (s13)
2) 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.
Commercial Law
Order to Pay on Demand (s14)
1) Subject to subsections (2) and (3), an order to
pay is an order to pay on demand if:
a) the order is expressed to require payment
on demand, at sight or on presentation; or
b) no time for payment is expressed in the
instrument containing the order.
Commercial Law
Order to Pay on Demand (s14) (cont.)
2) 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.
Commercial Law
Order to Pay on Demand (s14) (cont.)
3) 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:
a) at or before a particular time; or
b) where the instrument containing the order is
presented at or before a particular time.
Commercial Law
Order to Pay a Sum Certain (S15)
1)
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.
2) 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.
Commercial Law
Order to Pay a Sum Certain (S15)
(3) 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.
Commercial Law
Order to Pay a Sum Certain (S15)
4) Where an instrument contains:
a) an order to pay a specified sum; and
b) 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.
Commercial Law
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
Commercial Law
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))
Commercial Law
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
Commercial Law
Terms
 Drawer – Indorsee - Holder in due Course
Claims
Drawer
Cheque
Cheque
Payment
Payment
Indorsee
Holder in
due course
Commercial Law
Specification of Payee or Indorsee (S19)
1) A person shall not be taken to be specified in a
cheque as payee or indorsee unless the
person:
a) Is named or otherwise indicated with
reasonable certainty, in the cheque: and
b) Is not a fictitious or non-existing person
Commercial Law
Specification of Payee or Indorsee (S19)
2) 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.
Commercial Law
NOT a Payee or Indorsee
When:
 A fictitious person
 A non-existing person
 Reference is too obscure or uncertain