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.
A— Written Form
Negotiable instruments must be in written form. Clearly an oral order or promise can create the danger of fraud or make it difficult to determine liability. Negotiable instruments must possess the quality of certainty only formal, written expression can give. The mode of writing can be handwritten, typed or printed.
We don’t find any explicit requirement of writing in the commercial code provisions. However articles 735, 823 and 827 impliedly require the instrument be in writing. All these articles begin by the phrase “…..shall contain” and then enumerates the specific requirements. these specific requirements statements to be written by the drawer or maker. Hence the code makes it apparent that an oral order or promise could not be considered as a commercial instrument. Additionally article 715 defines a negotiable instrument as “any document”, making it clear that only a written instrument may qualify as negotiable.
There are practical limitations concerning the writing and the substance on which it is placed. The writing must be on material that lends itself to permanence. Instruments carved in blocks of ice or recorded on other impermanent surfaces would not qualify as negotiable instruments.
The writing must also be portable. If an instrument is not portable, it can not meet the requirement that it be freely transferable. For example Abera writes on the side of a dog “ I Abera promise to pay Almaz or order 1,000 birr on demand.” Technically this meets the requirements of a negotiable instrument, but as a dog can not easily be transferred in the ordinary course of business, the instrument is non negotiable.
Permanence and portability are not spelled-out legal requirements under the commercial code. If disputes related to permanent and portability are bought before our courts the judge has to construct whether a given instrument is negotiable or non negotiable, guided by the undraping role and function of instruments in facilitating business transaction. Avoiding risk of loss and making business easy and simple, that is the overall relevance of instruments. Moreover, the judge should also take into account the intention of the parties, custom of business in the area and other relevant circumstances attached to the case and rules of interpretation which could help him reach at correct and fair conclusion.
B-Signature Arts 735(h),823(g),827(e)
The issue of signature is very important in the law of negotiable instrument, because it has varying implication for each party starting from issuance of the instrument to each successive stages of the negotiation. First of all signature by the maker or drawer makes the instrument valid and binding creating duties on the person who initiates it and immediately creating rights upon delivery to the holder. Secondly, it has to be emphasized that the key to liability on a negotiable instrument is a signature. Every party who signs a negotiable instrument is either primarily or secondly liable for payment of that instrument when it comes due.
Having said so, let’s examine as to who should and how a negotiable instrument should be signed so as to be called a valid instrument. Generally for an instrument to be negotiable, it must be signed by
1) the maker if it is a promissory note (Art 823(g)
2) the drawer if it is a Bill of exchange or a cheque(Arts 735(h) and 827(e) respectively.) If a person signs an instrument as the agent for the maker or drawer, the maker or drawer has effectively signed the instrument, provided the agent has the appropriate authority.
In general terms Art 734(1) of the code requires Declarations made by commercial instrument to bear the signature of the person making it (i.e. the maker or the Drawer) since a negotiable instrument create a duty on the person signing on it, it is self evident that he should have legal capacity to perform juridical acts.
Determining what constitutes a signature, in some cases may become difficult. The word signature includes ‘any symbol exempted or adopted by a party with present intention to authenticate a writing.’ Art 734(1) after imposing a general requirement of signature with out defining “signature” typically acknowledges that signature may be made by a hand written mark or by mechanical process such as stamp. However a thumb mark by a physical person unable to sign, should be verified by an authentic declaration to bind that person. [(Art 734(3)]. Although this rule seems applicable to a physical person unable to sign, it has to be similarly applicable to any physical person even literate and able to sign, as far as he chooses a thumb mark as his signature.
The rules in Art 734 are limited to the manner of making signature, they do not indicate as to what a mark, word or symbol could be validly called a signature. Hence as far as it unequivocally manifests the intention of the maker or drawer, a very brand interpretation should be given as to what mark, symbol or may be properly called as signature. According to the American uniform commercial code any name, including a trade or assumed name, word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing is regarded as a signature. Thus, initials, an x mark, a trade name or assumed name is sufficient.
The Location of the signature on the document is unimportant, though the usual place is the lower right hand curer. Although, there is no clear indication as to the right location of the signature in the commercial code any mark or symbol on the body of the instrument should be regarded as a valid signature. The intention of the person putting his signature on the instrument and avoiding any uncertainty should be taken as key factor in determining the validity of any signature.
C-Unconditional promise or order to pay –(Art 735(b), 823(b),827(a)
For an instrument to be negotiable, it must contain an express order or promise to pay. A promise is simply a pledge to transfer money. For the purpose of negotiable instruments a promise must be express and unconditional. A mere acknowledgement of debt, which might logically imply a promise, is not sufficient to constitute valid promise. The promise must be an affirmative, not acknowledgment.
“Ato Zinabu, I.O.U Br 1,000”. Here I.O.U stands for , “I owe you.” This is only an admission of indebtedness or acknowledgement of debt. There is no promise to pay and there fore the instrument is not a promissory note.
is the following a valid promissory note?
“I promise to pay br 1,000 to the order of Ato Adunga (the seller) for the purchase goods from him.”
Order which is associated with three party instruments i.e.. Bill of exchange & cheque can be defined as command to another to transfer money. An order instrument orders, or directs, a third party to pay the instrument as drawn. It must be more than an authorization or request.
When the drawer issues a cheque, the word pay (to the order of a payee) is a command to the drawee bank to pay the cheque deducting from his account when presented. The order is mandatory, but sometimes it may be written in a courteous form with words “please pay” or” kindly pay”. The bottom line is the language used by the drawer must be a precise and express one.