Negotiable Instrument

Private International Law

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 ACKNOWLEDGEMENT

It gives me incredible pleasure to present my project of Private International Law on

Negotiable Instrument.

I would like to enlighten my readers regarding this topic and I hope I have tried my best to pave the
way for bringing more luminosity to this topic.

I am grateful to my Private International Law Faculty who has given me the idea and
encouraged me to venture this project. I would like to thank librarian for his interest in
providing me a study materials.

And finally I would like to thank my parents for the financial support.

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 CONTENT

Topic Page No

Objectives 3

Significance & Benefit of the Study 3

Scope of the Study 3

Literature Review 3-4

Research Methodology 4

Hypothesis 4

Chapter I: Introduction 5-6

Chapter II: Characteristics of a Negotiable Instrument 7
Chapter III: Bills of Exchange Act 8
Chapter IV: Requirements for Negotiability 9
Chapter IV: Jurisdiction u/s 138 of N.I. Act, 1881 10-11
Chapter V: Presentation, Noting & Protest 12-18
Chapter VI: Conclusion 19
Bibliography 20

Objectives
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This project deals with negotiable instruments which are of special type of contracts which,
in the days of ever-increasing international trade and commerce and intercourse, are of
particular interest and significance to international law. It seems to be an established rule that
the negotiability of a foreign negotiable instrument depends upon the fact whether it is so
recognized by the custom or the law of country where it is sought to be enforced.

Significance & Benefit of the Study

The Negotiable instruments, such as bills of exchange, cheques, hundis and promissory notes
have been of great importance ever since the human beings embarked on trade and
commerce. In 1930-31 six international conventions relating to negotiable instruments were
signed in Geneva to unify national laws relating to negotiable instruments. This project
examines the nature and characteristics of a negotiable instrument and the important types of
negotiable instruments, for the purpose of private international law.

Scope of the Study

In this research paper, all sections of Bills of Exchange Act and Negotiable Instrument Act
have not been covered for the obvious reasons of them not being fully in practice. The
practices which are being reduced in writing herein below have lager impact on international
commercial transactions. Therefore they found their place in this paper. Needless to mention,
that this research is the outcome of doctrinal studies.
Research Methodology
The method of writing followed in the course of this research paper is primarily analytical
and the researcher has, for his convenience divided the write up into various parts. The
researcher has used doctrinaire method for hi research work. The researcher has followed a
Blue Book (19th Edition) mode of citation throughout the course of this research paper.
Hypothesis

Chapter 16, which is entitled “Of International Law”, of the Negotiable Instrument Act, 1881
deals with the Indian conflict of laws rules relating to negotiable instruments. These rules are
not exhaustive and have to be supplemented by the general rules of private international rule.

Chapter I: Introduction

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In India there is reason to believe that Instrument of Exchange were in use from early times
and the use of paper representing money were introduced by one of the Mohammadan
Sovereigns of Delhi in the early part of the Fourth century. The word “Hundi” a generic term
used to denote the instrument of Exchange in Vernacular is derived from the Sanskrit Root
“Hund” meaning “to collect.” With the advent and increase of the trade and business there
was great demand to use the paper currency as the huge amount cannot be transferred in the
coin currency1.
First time in 1866, the Indian Law commission of India drafted the Negotiable Instrument
Bill which was introduced in the council in December, 1867. The bill had to be redrafted in
1877. In 1880 by the order of the Secretary of the State the bill had to be referred to a new
Law Commission. On the recommendation of the new Law Commission the bill was
redrafted and again it was sent to a Select Committee which adopted most of the additions
recommended by the new Commission. The draft thus prepared for the fourth time was
introduced in the council and passed on 9th December 1881. It came into force on 1st day of
March 1882.
The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the
provision of the English Negotiable Instrument Act were applicable in India, and the present
Act is also based on the English Act with certain modifications. It extends to the whole of
India except the State of Jammu and Kashmir. The Act operates subject to the provisions of
Sections 31 and 32 of the Reserve Bank of India Act, 1934. Section 31 of the Reserve Bank
of India Act provides that no person in India other than the Bank or as expressly authorised
by this Act, the Central Government shall draw, accept, make or issue any bill of exchange,
hundi, promissory note or engagement for the payment of money payable to bearer on
demand2.
This Section further provides that no one except the RBI or the Central Government can
make or issue a promissory note expressed to be payable or demand or after a certain time.
Section 32 of the Reserve Bank of India Act makes issue of such bills or notes punishable
with fine which may extend to the amount of the instrument. The effect or the consequences
of these provisions are:
1. A promissory note cannot be made payable to the bearer, no matter whether it is payable
on demand or after a certain time.

1
David Mcclean & Kisch Beevers, 7th ed, Sweet & Maxwell, South Asian Edition, 2010, p. 135
2
http://www.wto/trade/co/google.com

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2. A bill of exchange cannot be made payable to the bearer on demand though it can be made
payable to the bearer after a certain time.
3. But a cheque (though a bill of exchange) payable to bearer or demand can be drawn on a
person’s account with a banker.3

Chapter II: CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

3
Available at : http://www.manupatra.com/articles

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A negotiable instrument has the following characteristics:
1. Property: The possessor of the negotiable instrument is presumed to be the owner of the
property contained therein. A negotiable instrument does not merely give possession of the
instrument but right to property also. The property in a negotiable instrument can be
transferred without any formality. In the case of bearer instrument, the property passes by
mere delivery to the transferee. In the case of an order instrument, endorsement and delivery
are required for the transfer of property.
2. Title: The transferee of a negotiable instrument is known as ‘holder in due course.’ A bona
fide transferee for value is not affected by any defect of title on the part of the transferor or of
any of the previous holders of the instrument.
3. Rights: The transferee of the negotiable instrument can sue in his own name, in case of
dishonour. A negotiable instrument can be transferred any number of times till it is at
maturity. The holder of the instrument need not give notice of transfer to the party liable on
the instrument to pay.
4. Presumptions: Certain presumptions apply to all negotiable instruments e.g., a
presumption that consideration has been paid under it. It is not necessary to write in a
promissory note the words ‘for value received’ or similar expressions because the payment of
consideration is presumed. The words are usually included to create additional evidence of
consideration.
5. Prompt payment: A negotiable instrument enables the holder to expect prompt payment
because dishonour means the ruin of the credit of all persons who are parties to the
instrument.4

Chapter III: Bills of Exchange Act

4
Available at: http://www.westlaw/articles/journals/nls.co.in

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Negotiable instruments have been around for centuries and were originally created as a
means of exchanging funds, allowing merchants to avoid the risks associated with carrying
large sums of money in dangerous circumstances. The actual funds were deposited usually in
some financial institution created for the purpose, and the merchants simply exchanged bills
or notes giving the other person the right to collect those funds. The rules associated with
negotiable instruments were originally developed by the merchant guilds and included in
their body of law, called the “Law Merchant5.”

These laws were adopted by the English courts and became an integral part of the common
law system, eventually forming the basis of the Bills of Exchange Act enacted by the British
parliament as part of their general legal reforms taking place in the late 19th century. The
Canadian government followed with the passage of the Canadian Bills of Exchange Act in
1890. Although the statute basically codified the existing common law, there were some
important changes, and so, the current act makes it clear that common law principles apply,
except when specifically contrary to the provisions of the act.

One of the effects of leaving the door open to the operation of common law in this way is that
the types of negotiable instruments are not limited to promissory notes, bills of exchange, and
cheques as set out in the act. The Bills of Exchange Act is federal legislation, and so, its
provisions apply uniformly throughout Canada. The only significant amendment to the act
took place in 1970 with the addition of a section concerned with “consumer notes6.”

Section 5 of the Act defines, “A bill of exchange is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain person to pay a certain sum of
money only to, or to the order of a certain person or to the bearer of the instrument” . A bill
of exchange, therefore, is a written acknowledgement of the debt, written by the creditor and
accepted by the debtor. There are usually three parties to a bill of exchange drawer, acceptor
or drawee and payee. Drawer himself may be the payee.7

Chapter IV: Requirements for Negotiability8

5
Supra Note.1
6
Supra Note.2
7
Available at: www.heinonline.uscorp/ac.ip.in/com/articles/Sale
8
Paras Diwan; Private International Law, 4th ed, Deep & Deep Publications, Delhi, 1998, p. 214

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1. Unconditional commitment. Any instrument that requires an event to take place or
qualification to be met before the promise to pay is binding on the maker of that instrument
will not qualify as negotiable. To be freely transferable, subsequent holders must not be
required to go back and look at the dealings of the original parties. The inclusion of
conditions such as this would make it impossible for the holder to know if the conditions had
been met and defeat the requirement of certainty.
2. Signed and in writing. The instrument must be able to stand on its own. It must be in
writing, and the name of the maker or drawer must appear on the face of the document.
Because the legislation does not require that the person signing the document be the one
promising to pay, it is quite permissible to have it created and signed by an agent and still
qualify as a negotiable instrument providing that agent is acting within his authority. An
agent acting without authority would be personally liable on the instrument. When a person is
signing a negotiable instrument on behalf of a company or employer, it is vital that they make
it crystal-clear that they are acting on behalf of another.
3. Payable at a fixed time or on demand. An instrument can be made payable on demand by
so stating on the instrument or by making no indication at all of a time for payment. A cheque
is an example of a negotiable instrument payable on demand. The holder of the instrument is
free to present the instrument for payment at any time during normal business hours. An
instrument not payable on demand must be payable on some certain date or at some
determinable time as specified on the instrument.
4. For a fixed amount of money. A negotiable instrument must be for a certain amount of
money specified on the face of the instrument. The payment of that money can be made in
instalments, and interest can be added, but the amount owing must be certain.
5. Delivery of the instrument. Even if the instrument has been drawn up, it does not qualify as
a negotiable instrument until it has been physically transferred to the payee. This first transfer
to the payee is called the issue of the instrument, and all subsequent transfers are called
deliveries. If delivery has been induced by fraud or if the instrument was stolen before it was
issued, the debtor is not obligated to honour it. However, if the instrument gets into the hands
of an innocent third party who qualifies as a holder in due course, such delivery will be
conclusively presumed.
6. The whole instrument must pass. Although you can sell the instrument at a discount.9
Chapter IV: Jurisdiction u/s 138 of N.I. Act, 1881

9
available at: www.indianjournals.com

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 Section 13810 says that Dishonour of cheque for insufficiency, etc., of funds in the
account. Where any cheque drawn by a person on an account maintained by him with a
banker for payment of any amount of money to another person from out of that account for
the discharge, in whole or in part, of any debt or other liability, is returned by the bank
unpaid,
either because of the amount of money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged to be paid from that account by an
agreement made with that bank, such person shall be deemed to have committed an offence
and shall, without prejudice to any other provisions of this Act, be punished with
imprisonment for a term which may be extended to two years, or with fine which may extend
to twice the amount of the cheque, or with both11:
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of six months from the date on
which it is drawn or within the period of its validity, whichever is earlier.
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand
for the payment of the said amount of money by giving a notice in writing, to the drawer of
the cheque, within thirty days of the receipt of information by him from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of
the receipt of the said notice.
Where a cheque was issued for business purchased at one place and the recipient of the
cheque also deposited the cheque into his account at that very place, but, after dishonour, he
issued notice of dishonour from his place of business in some other town, it was held that a
complaint filed at that place was competent 12. The cause of action partly arose there because
to discharge his liability the drawer would have to make arrangement for payment at the
recipient place. Thus the places where the payment was to be made and where the cheque
was delivered are also relevant. Where a cheque was given at Delhi but was deposited by the
payee at some other place, there was no jurisdiction at that place. It is the duty of the debtor
to seek his creditor and, therefore, the court at the place of the payee had jurisdiction.

10
See also, Sec. 138 of Negotiable Instrument Act, 1882
11
Paras Diwan; Private International Law, 4th ed, Deep & Deep Publications, Delhi, 1998, p. 213
12
Ibid

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Cause of action may arise at the place where the cheque was issued or delivered or where the
money was expressly or impliedly payable. Where there was averment in the compliant of an
agreement to return the money at the residence of the complainant, it was held that the cause
of action arose there.

The offence falling under Section 138 of the Act will not be the only solitary act of dishonour
by the Bank on which the cheque is drawn. Even giving of the cheque by the accused when
he has not made arrangements for honouring of the cheque itself will be a part of the facts
constituting the offence. Section 178(b), Cr. P.C. lays down that when an offence is
committed partly in one local area and partly in another area, it may be enquired into and
tried by a Court having jurisdiction over any of such local areas. Under Section 179, Cr. P.C.
when an act is an offence by reason of anything which has been done and of a consequence
which has ensued, the offence may be inquired into or tried by a Court within whose local
jurisdiction such thing has been done or such consequence has ensued.13

Chapter V: Presentation, Noting & Protest

13
Cheshire, North & Fawcett; Private International Law (14th ed, 2008) p. 578

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When a Promissory note or bill of exchange has been dishonoured by non-acceptance or non-
payment, the holder may cause such dishonour to be noted by a notary public upon the
instrument, or upon a paper attached thereto, or partly upon each. Such note must be made
within a reasonable time after dishonour, and must specify the date of dishonour, the reason, if any,
assigned for such dishonour, or, if the instrument has not been expressly dishonoured, the reason why
the holder treats it as dishonoured and the notary’s charges.

Section 102 provides that when a Promissory note or a Bill of Exchange is required by law to
be protested (as is the case with the foreign bills) notice of such protest must be given instead
of notice of dishonour, in the same manner, and subject to the same conditions. Noting and
protesting are dispensed with, if the bill does not appear to be a foreign bill upon its face.

In addition to giving notice of dishonour the holder of dishonoured inland bills, if he so

desires may cause the bill to be noted or protested. Inland bills may or may not be protested.
But foreign bills must be protested for dishonour, when such protest is required by the law of
the place where they are drawn. Generally all bills drawn outside India must be protested.
Protest is absolutely necessary in case of foreign bills, and the courts will not allow any
evidence of dishonour except the evidence of protest.
The provisions as regards noting and protest under sections 99 and 100 of Negotiable
Instruments Act are not mandatory but directory in nature and therefore non-compliance
thereof cannot defeat the claim. This is obvious from the comparison of the language used in
section 99 and 100 with that of section 104 of the Act as regards foreign bills, which is
mandatory.14
When a Promissory note or bill of exchange has been dishonoured by non-acceptance or non-
payment, the holder may, within a reasonable time, causes such dishonour to be noted and
certified by a notary public. Such certificate is called a protest.
Foreign Bills of exchange must be protested for dishonour when such protest is required by
the law of the place where they are drawn. A promissory note, bill of exchange or cheque
drawn or made in India and made payable in or drawn upon any person resident in India shall
be deemed to be an inland instrument. All other instruments are called foreign instruments.15

Chapter VI: Case Laws

14
Paras Diwan, Private International Law (4th ed, 1998) p. 216
15
Ibid

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 1. Toronto Dominion Bank v. Jordan16
Mrs. Jordan was a bank clerk who had convinced her husband and Mr. Courage, the manager
of the local branch of the Toronto Dominion Bank, that she was a wealthy and successful
business executive. In fact, she was using bank accounts of several relatives to move money
from account to account to support her speculation in the stock market. Such a practice is
known as “kiting” and involves drawing cheques on a succession of accounts to cover funds
drawn from those accounts.
Because there is a time delay in clearing the cheques and the final cheque covers the deficit
caused by the first cheque, it is difficult to detect that there is an amount outstanding. Mrs.
Jordan gave Mr. Courage gifts and involved him in some of her profitable speculations.
When two other bank managers became suspicious and warned him that she might be kiting
cheques, he ignored their warnings. Mr. Courage did become nervous, however, and pressed
her to cover a $350 000 overdraft that he had allowed her to accumulate. Mrs. Jordan covered
this with a blank cheque she had obtained from her husband drawn on the Teacher’s Credit
Union, which she filled in for $359 000.
She gave the cheque to Mr. Courage, but when it was dishonoured, it brought her “kiting”
scheme to an end. The Toronto Dominion Bank branch of which Mr. Courage was the
manager then sued Mr. Jordan for the face value of the cheque drawn on his account.
Normally, the bank would be in no better position than Mrs. Jordan and would not be able to
collect because of her fraud. But when a negotiable instrument is involved, the situation can
be quite different. If an innocent third party acquires a cheque in good faith, it can be
enforced against the drawer, even if the intervening party has been fraudulent.
This raised the question of whether Mr. Courage had acted in good faith. The court looked at
his involvement with Mrs. Jordan and decided that while he may not have been directly
dishonest, he certainly had not acquired the cheque in good faith and, therefore, the bank
could not enforce it against Mr. Jordan.
This complicated set of transactions illustrates the most significant characteristic of
negotiable instrument that is, their enforceability in the hands of innocent third parties and the
corresponding extreme vulnerability of those who make such negotiable instruments and
allow them to be circulated. In this chapter, we will examine negotiable instruments and the
rights and obligations of the parties to them. Cheques, bills of exchange (often called drafts),
and promissory notes are all negotiable instruments. They are in common use today because

16
2014 ONSC 215

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of several characteristics that greatly facilitate the commercial process. First, they can be used
as a substitute for money.
They represent a claim on a particular debtor or financial institution and so can be used to
transfer funds without actually handling large amounts of cash. They can be transferred to
others not associated with the original transaction, without notice and with the assurance of
payment, independent of any dealings between the initial parties or anyone else associated
with the instrument. Negotiable instruments can also be used to advance credit. The
negotiable instrument gives the holder a claim for a stated amount, and if this is made
payable at some future date, a creditor-debtor relationship is created. Negotiable instruments
can be made payable by instalments, bear a stated interest, and have the additional advantage
of being freely transferable to other creditors, independent of any problems associated with
the original transaction. While the use of negotiable instruments has fallen because of the
growing use of credit cards, debit cards, and the electronic transfer of funds, they still play a
significant role in commercial transactions and consumer credit.
2. Trans Canada Credit Corp. Ltd. v. Zaluski et al.; Niagara Peninsula Compact
Agency, Third Party17
Mr. and Mrs. Zaluski were persuaded to purchase a vacuum cleaner from Niagara Peninsula
Compact Agency through the fraudulent efforts of their salesman Mr. Green. Mr. Green not
only misrepresented the nature of the sale but also claimed not to be selling vacuum cleaners
at all. This was a scheme whereby Mrs. Zaluski was to give Mr. Green a series of referrals
that if they resulted in a sale would earn her a $25 commission per sale. The Zaluskis signed
both a conditional sale agreement for the vacuum cleaner as well as a promissory note.
Niagara then assigned the conditional sale agreement and negotiated the promissory note to
Trans Canada Credit.
This is a common practice allowing the selling company to get their money right away, albeit
at a discount, and the finance company to then carry on the business that is their specialty, the
advancement of credit. As a result, when the Zaluskis failed to pay, it was Trans Canada
Credit that demanded payment.
There is no question that the original sale was based on the fraudulent misrepresentation of
Mr. Green and that Niagara was responsible for that fraud. If Niagara had sued, the fraud of
Mr. Green would have been a good defence against them, and the Zaluskis would not have
had to pay. Had Trans Canada Credit sued on the conditional sale agreement that had been
assigned to them, they, too, would have lost.
17
(1969) ON Co. Ct.

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They got only what Niagara had to give and that was tainted by Mr. Green’s fraud. However,
since Trans Canada Credit qualified as a holder in due course, they sued on the promissory
note and were successful. The Zaluskis had to honour the note despite the fraud of Green and
had look to Niagara for reimbursement.
3. Centrac Inc. v. Canadian Imperial Bank of Commerce18
Office plus Interiors entered into an agreement to purchase office furniture from Centrac for
$48 000. Centrac demanded payment by certified cheque. Mr. Stanway, a principal of Office
Plus, deposited a cheque for $76 000 from another source in their account at the Canadian
Imperial Bank of Commerce (CIBC). He then asked the bank to certify an Office Plus cheque
for $48 000 to Centrac, which they did without checking to see if the deposited cheque would
be honoured. Centrac took the cheque and delivered the furniture to Office Plus.
When it was learned that the $76 000 cheque deposited earlier would not be honoured, the
representatives of the CIBC phoned Centrac and told them not to bother trying to negotiate
the $48 000 cheque, as they had stopped payment on it. But Centrac did present it for
payment, and when it was dishonoured, Centrac sued CIBC for payment. The court held that
when the bank had certified the cheque, it was giving Mr. Stanway something equivalent to
cash, and therefore CIBC was required to honour it.
“Once certification was made, any attempt made by the bank to avoid payment was too late.”
The bank, in this case, may have made an error in not checking out the first $76 000 cheque,
but they could not hide behind that error.
4. Bank of British Columbia v. Coopers & Lybrand Ltd.19

In the early 1980s, it was common practice for investors to obtain tax advantages through
MURBs (multi-unit residential buildings). To facilitate this scheme, Community Builders ltd.
sold 29 units to a series of investors, taking a document purporting to be a promissory note.
(In fact, the actual construction of the deal was more complex in order to facilitate the tax
shelter requirements of the MURB). Each of the investors paid $10 000 in cash and signed
two of these promissory notes payable to Community for $22 400 and about $15 000, varying
somewhat unit to unit.
All the notes taken together had a face value of well over a million dollars. These notes were
then assigned by Community Builders to the Bank of British Columbia as security. They
were not actually transferred to the bank; rather, copies of them were given to the bank, and
the bank had the right to demand production of the actual documents at any time. The bank
18
120 D.L.R. (4th) 765 (Ontario Court of Appeal)
19
(1896) 26 SCR 430

15
advanced almost $800 000 to Community secured by the assigned promissory notes.
Eventually, the bank requested that Community endorse the notes and deliver them to the
bank, but before this took place, Community went into receivership. An action was
commenced by the bank against the investors for the value of the promissory notes.
In fact, the bank lost their action, and the reasons are quite instructive. First of all, although
they had the right to become holders of the negotiable instruments, they did not do so. There
was no endorsement and no delivery of the promissory notes to them.
Therefore, they had them by right of assignment only. That means they were in no better
position than Community and did not obtain the rights of a holder in due course. This nicely
illustrates the distinction between assignment and negotiation of negotiable instruments. The
bank would have been in a much better position as a holder in due course of the notes, rather
than as an assignee.
5. Pennefather v. Zanet, British Columbia County Court20

The plaintiff and the defendant had agreed to buy a hotel together, but when it came time to
pay the deposit, the defendant did not have the money. It was agreed, therefore, that the
plaintiff would lend the defendant $25 000 for this purpose but that there would be a
promissory note made by the defendant in favour of the plaintiff for that amount, payable on
demand.
A letter was attached to this promissory note, explaining that if the sale went through, the
loan would be credited towards the plaintiff’s share of the purchase. If it did not go through,
the defendant would have to pay the deposit. In fact, the transaction was not completed, and
the plaintiff lost his deposit and refused to honour the promissory note, claiming the note was
conditional. The court agreed.
The note and the letter had to be taken as one agreement, and it was clear from the letter that
the note would only have to be paid if the deal collapsed; this made it conditional, and the
Bills of Exchange Act defines a promissory note as an unconditional promise to pay a certain
sum of money. This was not a promissory note. The plaintiff then was allowed to change his
pleading, so he was suing for breach of contract rather than for payment on a promissory
note.
6. Stienback Credit Union Ltd. v. Seitz21
Mr. Seitz was a businessman in Winnipeg who agreed to provide bridge financing for the
Winnipeg Lions Club to cover the expenses for a fundraising concert it was planning. He
20
2014 SCC 44
21
(1993) 3 SCR 519

16
wrote a $100 000 cheque and gave it to the Lions Club which presented it to the Royal Bank
for deposit. Before crediting the Lions Club account with the money, the bank phoned Seitz’s
credit union to confirm that it would honour the cheque, even though there were not quite
enough funds in the account.
The credit union assured the bank that the cheque would be guaranteed and that it was
unnecessary to certify it. It turned out later that the concerts were a disaster, and Mr. Seitz
tried to stop payment on the cheque.

7. Canadian Imperial Bank of Commerce v. Burman and MacLean22

On May 4, 1979, the defendant, Burman, bought a car from the defendant, MacLean, for
$3700. Burman made two cheques totalling this amount payable to MacLean to cover the
price. Both were dated May 6, 1979. About 6:30 p.m. on May 4, MacLean took these two
cheques to CIBC at Sydney River, where he had an account. The cheques were drawn on the
Bank of Montreal. CIBC took the cheques and gave MacLean $3700 for them.
It turned out that MacLean had fraudulently misrepresented the nature of the vehicle. Instead
of having 53 100 kilometres on the odometer, it had 136 800 kilometres. Burman went to the
Bank of Montreal and issued a stop payment order before the bank opened on May 7, 1979.
CIBC, in this action, is seeking to force Burman to honour the cheques for $3700.

8. Eastern Elevator Services Ltd. v. Wolfe23

Wolfe was dissatisfied with his employment and discussed the possibility of working with
another employer, Pace. An agreement was worked out, whereby a separate company,
Eastern Elevator Services Ltd., was to be incorporated and employ Wolfe. But Wolfe had to
give Eastern a $5000 cheque to show how sincere he was, the understanding being that the
cheque would not be cashed unless Wolfe failed to honour the agreement and did not take up
his new position of employment.
The deal fell through, Wolfe did not become an employee, and he stopped payment on the
cheque. Eastern sought a court order that Wolfe was required to pay out on the cheque.

9. A. E. LePage Real Estate Services Ltd. v. Rattray Publications24

22
2014 BCSC 285
23
455 A.2d at 1237
24
(1994), 120 D.L.R. (4th) 499, O.R (3d.) 216

17
In 1985, Rattray agreed to lease certain premises from A. E. Le Page on Yonge Street.
Pursuant to that agreement, Rattray delivered a cheque to LePage for $20 825.89 as a deposit.
It was drawn on a branch of the CIBC. A. E. LePage was acting for London Life, the owner
of the property. The offer was taken by LePage to London Life for their signature.
Rattray changed his mind and stopped payment on the cheque, but because of a mistake at the
CIBC branch, the stop payment order was ignored when the cheque was brought in for
certification by a representative of LePage.
The cheque was subsequently deposited in LePage’s trust account at the Toronto Dominion
Bank, but when it was sent to the CIBC branch, they refused to honour it. Indicate the
arguments on both sides of this case as to whether or not A. E. LePage should be able to
require the bank to honour this cheque.

10. Enoch Band of the Stony Plain Indian Reserve Case25

Morin worked as an employee of the Enoch Band, and one of her responsibilities was to
requisition cheques for the payment of students who were members of the band in various
schools. Eventually, these students would cease to be eligible for the band supplements, but
Morin kept on making out the cheques, forging the students endorsements on the cheques,
when necessary, and depositing them in her own account.
All of the cheques were properly drawn on the band, signed by the band’s authorized signing
officers, and made payable to the existing individuals, but they were intercepted, cashed, and
deposited by Morin.
When the cheques came back to the band, they were honoured. The scheme was eventually
discovered, Morin was fired, and this action was commenced against the Bank of Montreal
by the band, seeking repayment of the monies debited from their account, representing the
cheques with the forged endorsements.

Chapter VI: Conclusion

A negotiable instrument is a piece of paper which entitles a person to a sum of money and
which is transferable from one person to another by mere delivery or by endorsement and
delivery. The characteristics of a negotiable instrument are easy negotiability, transferee gets

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[2014] 1 F.C.R. 556

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good title, and transferee gets a right to sue in his own name and certain presumptions which
apply to all negotiable instruments.
There are two types of negotiable instruments (a) Recognised by statue: Promissory notes,
Bill of exchange and cheques and (b) Recognised by usage: Hundis, Bill of lading, Share
warrant, Dividend warrant, Railway receipts, Delivery orders etc. The parties to bill of
exchange are drawer, drawee, acceptor, payee, indorser, indorsee, holder, drawee in case of
need and acceptor for honour. The parties to a promissory note are maker, payee, holder,
endorser and endorsee while parties to cheque are drawer, drawee, payee, holder, endorser
and endorsee.
Negotiation of an instrument is a process by which the ownership of the instrument is
transferred by one person to another. There are two methods of negotiation: by mere delivery
and by endorsement. In its literal sense, the term ‘endorsement’ means writing on an
instrument but in its technical sense, under the Negotiable Instrument Act, it means the
writing of a person’s name on the face or back of a negotiable instrument or on a slip of paper
annexed thereto, for the purpose of negotiation. A bill may be dishonoured by non-
acceptance (since only bills require acceptance) or by non-payment, while a promissory note
and cheque may be dishonoured by non-payment only. Noting means recording of the fact of
dishonour by a notary public on the bill or paper or both

Bibliography
Internet
 www.indiajournal.com
 www.westlawindia.com
 www.manupatra.com

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Books

 Cheshire, North & Fawcett, Private International Law, 14th ed, Oxford University
Press, 2008
 Paras Diwan; Private International Law, 4th ed, Deep & Deep Publications, Delhi,
1998
 David Mcclean & Kisch Beevers, 7th ed, Sweet & Maxwell, South Asian Edition,
2010

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