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NEGOTIABLE INSTRUMENTS INTRODUCTION
Chose in action = property which cannot be reduced into physical possession Shares Debts Rights under contracts Choses in action unassignable under common law Assignable under equity but with restrictions
Notice had to be given to the debtor, because if he paid the assignor without having received notice of the assignment he could not be called upon the pay the assignee. An equitable assignment is always subject to the principles of equity so that any defence against the debt or off setting of the debt that the debtor could raise against the assignor remained valid against the assignee.
Restrictive and inefficient Established group of documents that were freely transferable without need to give notice. Transfer free of any defect in title Came to be known as negotiable instruments.
By virtue of statute Bills of Exchange Act 1908 Long-standing and universally accepted custom Goodson v Hawera Lawn Tennis and Croquet Club.
Title passes by delivery or delivery with endorsement. Holder can sue in their own name Transferee takes clear of any defects in title of transferor – expect with fraud.
Examples of Negotiable Instruments
Bearer Bonds Share warrants to bearer Bearer scrip Dividend warrants Treasury bills Promissory notes Bills of exchange Cheques
Bills of Exchange
an unconditional order in writing addressed by one person to another which is signed by the person giving it, requiring that person to whom it is addressed to pay on demand, or at a fixed future time a certain sum of money to a specified person or the bearer of the bill.
Use of Bill of Exchange
Bills of exchange developed because in the normal course of business a seller is anxious to obtain payment for their goods while the buyer is equally as anxious to defer payment, often to give them an opportunity to re-sell the goods and pay for them from the proceeds of re-sale. By using a bill of exchange it is possible for the seller to have payment and the buyer to have credit at the same time.
Example of Bill of Exchange
$550 Wellington 12 July 2003 30 days after date pay to my order Five Hundred and Fifty Dollars ($550) value received. To Jones Smith 12 Queen St Auckland
Bills of Exchange Act 1908 Rules of common law including law merchant. International Ore and Fertilizer Corp v East Coast Fertilizer Co
Type of bill of exchange Cheques = bills of exchange drawn on a bank Cheques payable on demand A cheque is therefore an unconditional order in writing, addressed by a customer to their bank requiring the bank to pay on demand a certain sum in money to the order of a specified person or bearer.
Bill of Exchange Act 1908 Cheques Act 1960 Bill of Exchange Amendment Act 1995