Debr

eBer
hanuni
ver
sit
ySchoolofLaw

Cour
seTi
tl
e:-LawofBanki
ng,
Negot
iabl
eInst
rument
sandI
nsur
ance
Gr
oupTwoAssi
gnment
Tit
le:
-Legal
revi
ewonnegoti
abl
einst
rument
sandnat
ional
bankofEt
hiopi
a
chequeaccountoper
ati
on

Name I
DNO.
1. Dani
elMuchaw DBUR/
2503/
13
2. Al
emshetZel
eke DBUR/
2506/
13
3. Gor
masWor
ku DBUR/
2515/
13
4. Al
azarYar
egal DBUR/
2528/
13
5. Bi
l
alKebede DBUR/
2543/
13
6. Bezawi
tTesf
aye DBUR/
2550/
13
7. Bet
elTami
ru DBUR/
3004/
13

Submi
tt
edt
o:-Mr
.Abr
aham R.
 Submi
ssi
ondat
e:-Mar
ch20,
2024
Par
tI
Negot
iabl
einst
rument
sAr
ti
cle(
715-
895)

Basi
cJust
if
icat
ionofpol
icy
Aspert
he1960commer
cialcodeofEt
hiopi
a,negot
iabl
einst
rumenti
sanydocument
i
ncor
por
ati
ngar
ight
stoanent
it
lementi
nsuchamannert
hati
tbenotpossi
blet
o
enf
orceort
ransf
ert
her
ightsepar
atel
yfr
om t
hei
nst
rument(
Art715(
1))
.Itmeant
hat
documentt
hatcont
ainr
ight
scanbet
ransf
err
edbydel
i
ver
y.Ther
ighti
snotsepar
atel
y
t
ransf
erabl
efr
om t
hedocument
.Theyar
eincor
por
eal
andmov
abl
e.

Themai
nobj
ect
iveoft
hesepr
ovi
sioni
sbasi
cal
l
ytobeser
veasgui
del
i
net
oregul
ate
t
he r
ight
s and obl
i
gat
ions ofv
ari
ous negot
iabl
einst
rument
s such as commer
cial
i
nst
rument
s,t
ransf
erabl
esecur
it
iesanddocumentoft
it
let
othegoods(
Art715(
2))
.

Scopeappl
icat
ion

Thi
slaw mai
nlygov
ernsnegot
iabl
einst
rument
sand commer
ciali
nst
rument
sli
ke
t
ransf
erabl
esecur
it
ies,document
soft
it
let
o goods,bi
l
lofexchange,cheque,and
pr
omi
ssor
ynot
es.

Speci
fi
csubj
ectmat
ter

Thewor
dnegot
iabl
emeans‘
tr
ansf
erabl
ebydel
i
ver
y’andt
hewor
d‘i
nst
rument
s’means
awr
it
tendocumentbywhi
char
ight
siscr
eat
edi
nfav
orofaper
son.Thus,t
het
erm
Negot
iabl
eInst
rumentl
i
ter
all
yref
erst
o adocumentcont
aini
ng r
ight
sthatcanbe
t
ransf
err
edbydel
i
ver
yanddur
ingt
hist
imei
tisnotpossi
blet
otr
ansf
err
ight
ssepar
atel
y
f
rom ani
nst
rument(
art715)
.Thi
sinst
rumenti
str
ansf
erbyendor
sement
,fol
l
owedby
del
i
ver
ytot
hebenef
ici
ary
.

Ther
ear
ethr
eet
ypesofnegot
iabl
einst
rument
sthesear
e;

1.commer
ciali
nst
rument
:-i
sincor
por
ater
ight
sforpay
mentofaspeci
fi
edamount
ofmoneyandt
heyar
eusedasasubst
it
utef
orexchange.Ar
ti
cle732oft
he1960
Et
hiopi
anCommer
cialCodedef
inesi
tasanegot
iabl
einst
rument
sset
ti
ngoutan
 ent
it
lementconsi
sti
ng i
nthe pay
mentofa sum ofmoney
.Commer
cial
i
nst
rument
sundert
hecodear
ebi
l
lsofexchange,pr
omi
ssor
ynot
es,cheques,
t
rav
eler
s’chequeandwar
ehousef
oodsdeposi
tcer
ti
fi
cat
es.

2.Tr
ansf
erabl
esecur
it
ies:
-isr
ight
sofowner
shi
porf
orpay
mentofmoney(
Art
345)
.Sour
cesofsuchr
ightar
efr
om bonds,shar
e,Tr
easur
ybi
l
l(Ar
t345)
.What
makessecur
it
iesnegot
iabl
eInst
rument
sist
hei
rtr
ansf
erabi
l
ityaccor
dingt
orul
es
ofnegot
iat
ion.

3.Document
soft
it
let
ogoods:
-itcont
aini
ngr
ight
sofowner
shi
pov
ergoodst
hat
ar
ebei
ngt
ranspor
tedorgoodswhi
char
ewar
ehoused(
Art
icl
e571-
576and610-
619)

Ty
pesofCommer
cialI
nst
rument
s

1.Bi
ll
ofexchange

Theyar
enegot
iabl
einst
rument
sincor
por
ati
nganuncondi
ti
onal
order
,addr
essedbyone
per
sont
oanot
her
,topayondemandorataf
ixedordet
ermi
nabl
efut
uret
imeacer
tai
n
sum i
nmoneyt
oort
otheor
derofaspeci
fi
edper
sonort
othebear
er.Or
dert
opay
moneyr
athert
hanapr
omi
set
opaymoney
.Ther
ear
ethr
eepar
ti
esi
nvol
ved:
-dr
awee-
t
heper
sonor
der
edt
opay
,dr
awer
-theper
soni
ssui
ngt
heor
der
,andpay
ee-t
heper
son
whor
ecei
vest
hepay
ment
.

Requi
rementofpay
mentofBi
l
lofexchangear
ewhi
chi
sli
stedunderAr
ti
cle735oft
he
1960Commer
cialCodeshoul
dbef
ulf
il
l.Al
thought
her
ear
eexcept
ionsl
i
stedunder
Ar
ti
cle736.

2.Mat
uri
tyofBi
ll
sofexchangeandpr
omi
ssor
y

Not
esmaybemadepay
abl
eei
theratsi
ghtorondemand,
atf
ixeddat
e,ataf
ixedper
iod
af
tersi
ght
/accept
anceorataf
ixedper
ioddat
e.(
Art
s769and825)
.Thedr
aweewho
pay
sabi
l
latmat
uri
tyorachecki
sval
i
dlydi
schar
gedandcannotbehel
dli
abl
eunl
ess
hehasv
iol
atedt
heopposi
ti
onofpay
mentor‘
stoppay
ment
’or
derr
espect
ivel
y(Ar
ti
cle
861and776)
.Thedr
aweewhof
ull
ypay
stheamountf
ort
hehol
deroft
hei
nst
rument
cant
aket
hei
nst
rumentf
rom t
hehol
der(
Art859(
1)andAr
t775)
.Par
ti
alpay
menti
s
al
l
owedbuti
ncaseoft
hist
hedr
aweecandemandt
hehol
dercandemandt
ospeci
fy
suchpay
menti
nthei
nst
rumentandt
ogi
ver
ecei
pt(
Art
s.859(
4)&775(
3).

Thedr
awer
/anendor
serofabi
l
lofexchangemayopposet
hepay
mentoft
hev
alueof
t
hebi
l
latanyt
imebef
orepay
mentont
hegr
oundsoft
hebankr
upt
cyoft
hehol
der
.
Si
mil
arl
y,t
hehol
derofabi
l
lmayopposepay
mentofabi
l
lont
hegr
oundofl
ossort
hef
t
ofbi
l
lbef
orepay
menti
smade(
Art779)
.

Accept
anceofCommer
cialI
nst
rument
sref
erst
otheagr
eementoft
hedr
aweet
opay
t
hev
alueoft
hei
nst
rumentt
othehol
derati
tsmat
uri
ty.Accept
anceshal
lbemadeon
t
hei
nst
rumentandmaybeexpr
essedbywor
dssuchas‘
accept
ed’
‘agr
eed’
oranyot
her
si
mil
arex
pressi
oni
mpl
yi
ngagr
eementoft
hedr
awee&si
gnedbyt
hel
att
er.

Accept
ance f
orhonorr
epr
esent
s a guar
ant
ee t
o pay t
he v
alue ofCommer
cial
I
nst
rument
sbyanyper
sonwhomayev
enbeasi
gnat
oryoft
hei
nst
rument
.Aper
son
mayguar
ant
ee t
he pay
mentoft
he whol
e orpar
toft
he v
alue ofa Commer
cial
I
nst
rumentoni
tsmat
uri
tybyaccept
ingi
tfort
hehonorofanyoneoft
hepar
ti
esl
i
abl
eto
t
hehol
der
.

Pr
omi
ssor
ynot
eisadocumenti
ncor
por
ati
nganuncondi
ti
onalpr
omi
sei
nwr
it
ingmade
byoneper
sont
oanot
her
.Iti
sal
mostal
loft
hem ar
esi
mil
arwi
thbi
l
lofexchangebut
whatmakedi
ff
erencei
sapr
omi
ssor
ynot
econt
ainspr
omi
set
opaywher
easabi
l
lof
exchangecont
ainsanor
dert
opay
,theconceptofaccept
ancei
snotappl
i
cabl
ein
pr
omi
ssor
ynot
e(Ar
t826)
.Inpr
omi
ssor
ynot
eonl
ytwopar
ti
esar
einv
olv
e.

3.Cheque

Achequei
sabi
l
lofexchangedr
awnbyadr
aweror
der
ingt
hedr
awee,
bankorf
inanci
al
i
nst
it
uti
on,
topayacer
tai
namountofmoneyt
othehol
derondemand.

Ther
ear
ethr
eet
ypesofcheque;
-tr
avel
er,
cer
ti
fi
ed,
blankanddr
ycheque.

Di
ff
erencebet
weenbi
l
lofexchangeandcheque

 I
sal
way
sdr
awnonabankerandi
sal
way
spay
abl
eondemand(
Art829)whi
l
ea
bi
l
lofexchangemaybedr
awnonanyoneandmaybemadepay
abl
eondemand
 oratf
ixedoradet
ermi
nabl
efut
uret
ime

 Chequecanbecr
ossedi
nsev
eral
way
sbutbi
l
lscannotbecr
ossed.(
Art863)

 Accept
ancei
snotnecessar
yforachecksi
ncei
tispay
abl
eondemandas
opposedt
obi
l
lsofexchange.

Gaps i
dent
if
ied i
nthe Et
hiopi
an 1960 commer
cialcode r
egar
ding negot
iabl
e
i
nst
rument
s(ar
ti
cles715-
895)i
ncl
ude:

 Lackofcl
ari
tyandspeci
fi
cit
yincer
tai
npr
ovi
sions,l
eadi
ngt
oconf
usi
onand
pot
ent
ial
misi
nter
pret
ati
onbyst
akehol
der
s.

 Out
dat
edl
anguageandt
ermi
nol
ogyt
hatmaynotal
i
gnwi
thcur
rentpr
act
icesand
i
nter
nat
ional
standar
ds.

 I
nadequat
epr
ovi
sionsf
orel
ect
roni
cnegot
iabl
einst
rument
s,whi
char
ebecomi
ng
i
ncr
easi
ngl
ycommoni
nmoder
ncommer
ce.

 Li
mit
edgui
danceonenf
orcementmechani
smsandr
emedi
esf
orpar
ti
esi
nvol
ved
i
nnegot
iabl
einst
rumentt
ransact
ions.

Recommendat
ionst
oaddr
esst
hesegapsi
ncl
ude:

 Conductacompr
ehensi
ver
evi
ew andupdat
eoft
hel
anguageandt
ermi
nol
ogy
used i
nthe code t
o ensur
eitr
efl
ect
s cur
rentpr
act
ices and i
nter
nat
ional
st
andar
ds.

 Pr
ovi
decl
eargui
del
i
nesanddef
ini
ti
onsf
orel
ect
roni
cnegot
iabl
einst
rument
sto
accommodat
eadv
ancement
sint
echnol
ogy
.

 Enhancepr
ovi
si
onsr
elat
edt
oenf
orcementmechani
smsandr
emedi
est
oensur
e
par
ti
eshav
eadequat
epr
otect
ioni
ncaseofdi
sput
esornon-
compl
i
ance.

 Consi
der i
ncor
por
ati
ng best pr
act
ices f
rom ot
her j
uri
sdi
cti
ons t
hat hav
e
successf
ull
ymoder
nizedt
hei
rlawsonnegot
iabl
einst
rument
s.

Byaddr
essi
ngt
hesegapsandi
mpl
ement
ingt
her
ecommendedact
ions,wesuggestt
he
Et
hiopi
ancommer
cial
codeshoul
dbeupdat
edt
obet
terser
vet
heneedsofst
akehol
der
s
i
nvol
vedi
nnegot
iabl
einst
rumentt
ransact
ions,pr
omot
ingt
ranspar
ency
,ef
fi
ciency
,and
l
egal
cer
tai
ntyi
ncommer
cial
deal
i
ngs.

Par
tII

Nati
onalBankofEt
hiopi
aChequeAccountOper
ati
onDi
rect
iveNo.
SBB/64/2016
Di
rect
iver
evi
ew
Asweknow ourcommer ciallaw wasenactedlongagoanditi
sknow
accessi
blefornewlyadoptedbanksy stemsithasahugegapeandt he
nati
onalbankofEthiopi
aunderhisaut hori
tyhasamandatetosti
pul
ate
dir
ecti
vestogover
nthemoni tor
ysyst
em.
Aswedi scussedabovet heonepur poseofest abl
i
shmentofnat i
onal
bankofEthiopiamaketransacti
onsthosearet
ransi
tedinEthi
opiasaf
eand
secure,ot
hermai npurposeofNBEhast omaintainstabl
erateofprice
exchanger ateand good financi
al syst
em bycont rol
li
ng t
hef i
nancial
sector.
And one of the conduct of f
inancialtransactions are negotiabl
e
i
nstruments l
i
ke cheque. Unless ot herwi
se l ike other transacti
on
mechanismschequetr
ansacti
onsneedt oconductandr ul
eBecausei tcan
easil
yabusebyany oneunlessitprotectedbyr uleandr egul
at i
onand
dir
ecti
ve.
DuetothisNati
onalbankmakethi
sdirect
ivesSBB64/2016.makeforthe
pur
poseofhealt
hychequeoper
ati
on.Anditsrepl
acetheprevi
ousdi
rect
ive
SBB31/2002.

Obj
ect
iveorpur
poseoft
hisdi
rect
ive
Addi
ti
onalt
othest
ipul
ati
onofEt
hiopi
ancommer
ciall
awf
rom ar
ti
cl
e840-
895,
Cheque( 827-896) :i
sabi llofexchangedr awnbyadr aweror der i
ngt hedrawee( bank
orfinancialinsti
tution)topayacer t
ainamountofmoneyt ot hehol derondemand.I tis
payableal way satthesi ght.Itsrequirement sar esimil
arwi t
ht her equirementbillof
exchange.Chequesar enoti ncludingrequi r
ement sofaccept ancebecausepay ment s
aremadeont hesi ghtbutnoti nthef uturesoi tdoesnotnecessar ytogi vesecurity
.
Duringthei ssuanceofchequest hemakermustbesuf fi
cientcov erasperar t830
otherwisehei sliableinci vi
laswel lascr i
minally.Thetransferabili
tyofchequesi s
bearer:itcanbef r
eelytransfer ablefrom oneper sontoasi mpl yhandi ngov eranditmay
beor dersasperar t843- 844ofcc.Par tialpayment sarepossi ble.Theper i
odof
l
imitati
onont hechequesar e6mont hsaftertheexpireoft i
mef orpr esentmentasper
art881-882.

Theobject
iveoft hi
sdirect
iveismaking oneguidelinestart
ing f
rom
openi
ng of cheque account t
o cl
osure of the account and other
managementsystemsduri
ngtheoper
ati
onofexchange.

Scopeoft
hedi
rect
ive
Thepr
ovisi
onsofthisdi
rect
ivei
sappl
i
cabl
eforbankoper
ati
ngi
nEt
hiopi
a
wit
houtanyexcept
ion.

Cont
ent heChequeAccountOper
soft ati
onDi
rect
iveNo.
SBB/
64/
2016
Moreorlessthisdi
rect
ivecanbecall
edgapfil
l
ingdir
ect
ivei
nt he
commer ci
alcodefr
om art840-895deal
saboutchequeandit
soperati
ng
syst
em, buti
thadverysigni
fi
cantgapsoit
sneededthesti
pulati
onofthi
s
di
recti
veIthasasti
pulat
ionsabout
 Howchequeaccountopen
 Howchequeaccountcl
osed
 Howbanksst
opchequepay
mentor
der
 Whatisdi
shonourchequei
sandact
iont
akenby
banksandNBEoperati
ons
  Howmai
ntenanceofdi
shonor
edchequesr
egi
ster
 Whatismechanismsmustbetakebycustomersto
cr
eatechequeaccountwhent
heirnameregi
ster
ed
byanotherper
son
 Anditcontai
nedki
ndsoff
ormalappl
i
cat
ionsused
fordi
ff
erentpur
poses,
int
hepar
tofAnnex

Anyper sonwhohascur rentaccountandmixedaccountcani ssuecheque

thisisthegener al
pri
nciple,butasadir
ecti
vesaysany onewhohasa
historysigni
ngadr ychequeoranydr awerorholderofchequeaccount
whoi ssueadi shonoredchequesmayr estr
ict
edt orunchequeaccount
untilt
ot hethepunishmentoff eeandsuspensionisconclude.(
thi
sstat
ed
onar ti
cle5oft hedir
ecti
v e)
Pri
mar ybankshasanobl i
gati
ontolett
heycust
omersknowaboutt he
chequesy stem andi
tsnat
ureuseandpurposeandli
abil
it
iest
hoseare
comingwi thmisuseofchequebasedontheagreementandthebank
poli
cy.(st
atedunderart
icl
e4.1.3and4.
1.4)
Onthearticl
e4oft hedir
ect i
vestatethatt
her equi
rementstoopencheque
accountandoneoft hem isnamei nt hi
srequi
r ementbanksar
egivemuch
concernbecauseofsomei ndiv
idualstr
ytoissuechequeaccounteventhey
haveanotheraccountthatmaybesuspended, sobanksmayprohi
bitt
hose
i
ndivi
dualstohavechequeaccount .
Andthenewrequi
rementst
ipul
atedi
nthi
sdi
rect
ivei
stohav
eti
n(Tax
i
denti
fi
cati
onnumber)
Taxpayerident
ifi
cati
onbydef aul
tithasser
ioussecuri
typr
otocol
,i
thas
fi
ngerpri
ntidenti
fi
cati
onsoaddi ngthiski
ndofrequi
rementismakethe
chequeoperati
onsy st
em strongandsecure.I
tissti
pulat
eunderthear
ti
cl
e
of4.1.
3and4. 3ofthedirect
ive.
Andt
hedirect
iveonar
ti
cle5st
ateaboutact
ionstobetakenbyabanks
andnat
ional
bank(NBE)upondi
shonor
ingchequethedi
recti
vest
ipul
ate
t
hreeki
ndofpuni
shmentandfee.I
tbecomest
rongandstr
ongwhent
he
r
epeti
ti
onoft
heacti
onordrawingdi
shonor
edcheques.

Forthe1st(
fi
rstt
ime)t
hehol
derofchequeaccountdr
awdi
shonor
ed
cheque

Forthe2nd(secondt
ime)t
hehol
derofchequeaccountdr
awdi
shonor
ed
cheque

Forthe3rd(
thi
redt
ime)t
hehol
derofchequeaccountdr
awdi
shonor
ed
cheque
Thosest
ageshasdi
ff
erentki
ndsofsuspensi
onandfee.Thedegreeor
st
agesaredet
ermi
nebytherepet
it
ionoftheact
ionwit
hinspeci
fi
edtime.
Addi
ti
onalt
othedir
ecti
vedr
awi
ngofdi
shonor
edchequeorbycust
om
cal
ledi
ssui
ngdrychequehasacr
imi
nall
i
abil
i
ty.
Thedirecti
vegiv
eawaytoreopenorcloset
hechequeaccountaf
terthe
endofthesuspensionandful
fi
ll
mentofcondi
ti
onsandobli
gati
onsorthe
opposit
ef orthecl
osur
ethosearest
atedunderar
ti
cl
e5and6oft he
di
recti
ve.
Andsomet i
mest hereisaci
rcumst ancestwoi ndivi
dualshavesimil
ar
nameandoneoft hem mayhav echequeaccountpr evi
ouslyand
suspendedbyt hebankbecauseofdr awingofdi shonoredchequeandt he
otheronemaywantchequeaccountbutt hebankmaydenyhi srequest
becauseoft heyassumehei sthepr evi
ousper sonsuspended,thedir
ectiv
e
makeawayf orthiskindofproblemsandmakeaf ormalappli
cat
ion.This
statedunderar ti
cle9andt hefoll
owingsubar ticl
esalthoughthe
applicat
ionattachedwi thAnnex~|||
Theotherconceptofthedir
ecti
veisaboutr
eporti
ngandinfor
mat i
on
shari
ng.Thi
sismandat orytobanksheal
thychequeaccountoperat
ioni
t
prot
ectbanksfrom mutiny.

Gapsi
dent
if
iedi
nthedi
rect
ive
Thel
ackofcl
ari
tyont
her
esponsi
bil
i
tiesofbanksandcust
omer
sincaseofcheque
di
shonororf
raud.Thedi
rect
ivedoesnotpr
ovi
decl
eargui
del
i
nesonhow suchcases
shoul
dbehandl
ed,l
eadi
ngt
oconf
usi
onandpot
ent
ialdi
sput
esbet
weenbanksand
cust
omer
s.

Recommendat
ions

Toaddr
esst
hisgap,i
tisr
ecommendedt
hatt
heNat
ionalBankofEt
hiopi
arev
iset
he
di
rect
ivet
oincl
udedet
ail
edpr
ocedur
esf
orhandl
i
ngchequedi
shonorandf
raudcases.
Thi
scoul
dincl
udespeci
fyi
ngt
her
esponsi
bil
i
tiesofbanksandcust
omer
sinsuch
si
tuat
ions,
aswel
lasout
li
ningt
hest
epst
obet
akent
oresol
vedi
sput
esef
fect
ivel
y.And
i
tisi
mpor
tantf
ort
heNat
ionalBankofEt
hiopi
atoconductr
egul
art
rai
ningsessi
onsf
or
bank st
affon t
he pr
ovi
sions oft
he di
rect
ivet
o ensur
e compl
i
ance and pr
oper
i
mpl
ement
ati
on.Thi
s wi
l
lhel
pimpr
ovet
ranspar
encyand account
abi
l
ityi
n cheque
accountoper
ati
ons,
ult
imat
elybenef
it
ingbot
hbanksandcust
omer
s.

Tosum up,byaddr
essi
ngt
hesegapsandi
mpl
ement
ingt
heser
ecommendat
ions,t
he
Nat
ionalBankofEt
hiopi
acanenhancet
heef
fi
ciencyandef
fect
ivenessofcheque
accountoper
ati
onsi
nthecount
ry.