WHEREAS, the national payment system is an essential component of the financial infrastructure of the country, whose safety, security and efficiency is critical to ensure financial stability, economic growth and financial inclusiveness;
WHEREAS, it has became necessary to provide rules on establishment, governance, operation, regulation and oversight of the national payment system so as to ensure its safety, security and efficiency;
NOW, THEREFORE, in accordance with Article 55 (1) of the Constitution of the Federal Democratic Republic of Ethiopia it is hereby proclaimed as follows:
1. Short Title
This Proclamation may be cited as the “National Payment System Proclamation No.718/2011″.
In this Proclamation unless the context requires otherwise:
1/ “book, record, account, document or information” means a book, record, account, document or information recorded or stored in any media including paper or data stored by electronic, optical, magnetic or in any other form;
2/ “card” means any card, or other device, including a code or any other means of access to an account, that may be used from time to time to obtain or deposit money or to make payment, and includes a debit, credit and stored-value card;
3/ “central counterparty” means an entity that is the buyer to every seller and the seller to every buyer in a settlement system;
4/ “central securities depository” means an entity in whose register securities or other financial instruments are immobilized so as to enable their transactions to be finally processed by book entry;
5/ “clearing” means the process of transmitting, reconciling and confirming funds or securities transfer instructions prior to settlement and includes the netting of instructions and the establishment of final positions for settlement;
6/ “clearing house” means the National Bank or an entity authorized by the National Bank that provides clearing services but excludes a clearing house recognized under any other law;
7/ “clearing system” means a system whereby participants present and exchange information relating to the transfer of funds, securities or other financial instruments to each other through a centralized system or at a single location and includes mechanisms for the calculation of participants’ positions on a bilateral or multilateral basis with a view to facilitating the settlement of their obligations;
8/ “electronic” mans electrical, digital, magnetic, optical, biometric, electrochemical, wireless or electromagnetic technology or any other technology used in relation to the national payment system;
9/ “electronic communication” mans electronic exchange of messages in a standardized format that allows:
a)visual display or listening of data that is clear and readily understandable; and
b)receiving and retaining the information in the message for subsequent retrieval such as by printing, recording or any other means for later use;
10/ “electronic equipment” means electronic terminal including computer, points of sale, automated teller machine, telephone and other similar devices;
11/ “electronic signature” means a data in an electronic form, affixed to or logically associated with, an electronic message, which may be used to guarantee the authenticity and identify the signatory in relation to the date message and to indicate the signatory’s approval of the information contained in the data message;
12/ “financial institution” means a bank, a micro-financing institution, postal savings, money transfer institution, an insurance company or such other similar institution as determined by the National Bank;
13/ “funds transfer” means any transfer of funds, either representing an order of payment or a transfer of money, which is initiated by a person by way of instruction, authorization or order to a financial institution to debit or credit an account maintained with that financial institution and includes point of sale transfers, automated teller machine transactions, direct deposits or withdrawal of funds, transfers initiated by telephone, internet, card or other devices;
14/ “large value funds transfer system” means large value electronic fund transfers, the amount of which shall be determined by the National Bank, which consists of:
a)an inter-bank funds transfer system;
b)high priority and time critical government fund transfer;
c)clearing and settlement of securities of the government; or
d)any other fund transfer system prescribed by the National Bank as large value.
15/ “National Bank’ means the National Bank
16/ “national payment system” means a system in the Federal Democratic Republic of Ethiopia that consists of the following :
a)sending, receiving and processing of orders of payment or transfers of money in domestic or foreign currencies:
b)issuance and management of payment instruments;
c) payment, clearing and settlement systems;
d)arrangements and procedures associated to those systems specified under paragraph (c) of this sub-article; and
e)payment service providers, including operators, participants, issuers of payment instruments and any third party acting on behalf of them, either as an agent or by way of outsourcing agreements, whether entirely or partially operating in the country;
17/ “netting” means the determination of the net payment obligations or the determination of the net termination value of settlement obligations by setting off or adjusting the payment obligations between two or more participants within the payment system;
18/ “operator” means the National Bank, a financial institution or any other entity authorized by the National Bank as operator;
19/ “participant” means a party who participates in a payment, clearing or settlement system as a direct participant which opens and maintains a settlement account at the National Bank or any other settlement entity or an indirect participant which shall only be able to settle its obligations due through the account of a direct participant;
20/ “payment instrument” means any instrument, whether tangible or intangible, that enables a person to obtain money, goods or service or to otherwise make payment or transfer money such as cheques, drafts and cards;
21/ “person” means any natural or juridical person;
22/ “retail funds transfer system” means a fund transfer system consisting of the cheque clearing system operated and administered by the National Bank and any type of retail fund transfer system authorized by the National Bank;
23/ “settlement” means the act of discharging obligations by transferring funds, securities or financial instruments between two or more parties;
24/ “settlement rule” means the rule that provide the basis upon which payment obligations are calculated, netted or settled;
25/ “settlement system” means a system for the discharge of payment and settlement obligations established and operated by National Bank or any other settlement system authorized by the National Bank;
26/ “stored value” means a representation of value that is intended to be used to make a payment which includes units of value recorded in a computer chip or any other device and may or may not be denominated by reference to units of a currency;
27/ “stored value card” means a prepaid card in which the record of funds can be increased or decreased;
28/ “system” includes a payment, clearing and settlement system;
29/ any expression in the masculine gender includes the feminine.
Every negotiable instrument to qualify as such must meet special requirements relating to form and content. These are mandatory requirements for the validity of the instrument. The absence of any one of such requirements renders the instrument non negotiable. On the other hand if it fulfills, it becomes negotiable i.e. transferable from one person to another person by delivery. The term ‘negotiability’ here refers to the capacity of the instrument being transferred by delivery or endorsement and simultaneously entitling the transferee rights and entitlements emanating from the instrument. When there is a valid negotiation the right and the document together, pass on to the transferee. As you can see from article 715(1), this very essence i.e. inseparability of the document Vs the right, is used as a key element in defining negotiable instruments by the commercial code.
The general part of the commercial code (articles 715-731) does not provide any common standard by which the negotiability of negotiable instruments can be measured. Rather it only provides specific requirements applicable to bills of exchange, promissory notes and cheques. Since all these instruments are commercial papers, we will in general examine the basic requirements applicable to all, at the same time comparing and contrasting them with the specific requirements of each instrument. The negotiability requirements of bills of exchange, promissory notes and cheques are indicated in article 735, 823 and 827 respectively.
There are two modes for the transfer of a negotiable instrument. The first one is through Assignment and the second one is through negotiation.
Transfer by Assignment
Normally, a bilateral contract between two parties produces effect only as between the two parties. However, one of the parties may freely transfer the rights arising out of the contract to another 3rd party, who is an outsider to the contract. Such mode of transferring rights is known as Assignment. Shortly stated assignment is the transfer of rights to a third person. The party making the assignment is the assignor, where as the party receiving the assignment is the assignee.
Art 1962 of the civil code expressly allows the creditor to assign his right to a third party even without the consent of the debtor. Transfer by Assignment gives the assignee only those rights the assignor possesses. In other words the assignee takes only those rights that the assignor originally had. The fact that no better title is transferred through assignment is what basically distinguishes assignment from negotiation. No transfer of better title also implies that the assignee’s rights are subject to defenses that the debtor had against the assignor (Art 1966 civil code)
Transfer by negotiation
The commercial code apart from providing the rules of negotiation does not define the term negotiation. According to the uniform commercial code negotiation is the transfer of an instrument in such form that the transferee (the person to whom the instrument is transferred) becomes a holder. Similarly according to Indian law, when a promissory note, bill of exchange or cheque is transferred to any person so as to constitute that person the holder there of, the instrument is said to be negotiated.
A person is said to be a holder if he is in possession of an instrument (1) that is payable to bearer or (2) that is made payable to an identified person and he is that identified person. For example when Haramaya Unievsrity issues and delivers a cheque to his employee, payable to “Almaz Tilahun or order”, Almaz is the holder of the cheque because she is in possession of an instrument payable to an identified person (Almaz Tilahun) and she is that person. Almaz may then purchase a TV set from a seller, and use the cheque as a mode of payment by endorsing (write on the back of the cheque as “pay to seller X” and sign) and deliver it to the seller X. This means she has negotiated the cheque to seller X. Seller X is now a holder of the cheque, because he is in possession of a cheque payable to an identified person(seller X) and he is that identified person. On the other hand, Almaz while endorsing may simply write her name on the back of the cheque (without indicating the transferee) and deliver it to seller X. still Almaz has negotiated the cheque, and seller X is the holder because he is in possession of a cheque payable to bearer. (A simple signature by the payee converts the instrument from order to Bearer.)
If the cheque was initially issued as Bearer or is converted from order to bearer by endorsement, it could simply be transferred by delivery. Assume Almaz delivers a bearer cheque to Hana, Hana now becomes a holder because she is in possession of an instrument payable to Bearer.
As a principle a transfer by negotiation creates a holder who, at the very least, receives the rights of the previous possessor. Unlike an assignment, a transfer by negotiation can make it possible for a holder to receive more rights in the instrument than the prior possessor had. A holder who receives greater rights is known as a holder in due course.
Generally, there are two known methods of negotiating an instrument so that the receiver becomes a holder. The method used depends on whether the instrument is order instrument or bearer instrument. The special part of the code dealing with commercial instruments provides only these two methods of negotiation. Contrary to this, the general part classifies negotiable instruments as Bearer, order and in a specified name (Art 719). As a result a third method of negotiation is provided for instrument in a specified name. (Art 722 & 723.) For two reasons, it can be concluded that, the method of transfer of “in a specified name instrument” is not applicable to commercial instruments.
Firstly, the law expressly considers Bills of exchange, promissory note and cheque issued in a specified name without the words “or to order” as order instruments. Then it clearly stipulates that such instruments will be negotiated though the same rules of negotiation applicable to any other order instruments (Art 746(2), 825(1)(a),833(1) secondly, The requirement of “registration of instrument” referred to in Art, 723, can not in any way be applicable to commercial instruments, which by their very nature do not need any registration for their transfer. . Art 723 has not been mentioned in the special part dealing with commercial instrument making the general provisions inapplicable to the special provisions. For this reasons the applicability of article 722 & 723 should be limited to only one form of negotiable instruments i.e. transferable securities ( see also article 341 which governs transfer of shares, which is a typical form of transferable securities.)
The types of Negotiable instruments are largely determined based upon the scope of definition given to negotiable instruments and specification of the instruments legally recognized as negotiable in that country’s law. In most countries, the scope of negotiable instruments is limited to commercial papers. i.e. to instrument other than cash, entitling the holder or the person whose name is specified on the paper, the payment of money. In this sense, negotiable instruments may be classified as order to pay [ Bills of exchange and cheque] and promises to pay (promissory notes). In the first class the person issuing the instrument (the drawer) gives a clear order to another 3rd party (Drawee) to make payment to holder or specified person on the instrument. In the second category there is no order to be given, but the maker of the instrument (promissor) binds himself and promises the beneficiary (the promisee) to pay a specified amount of money.