Tuesday, August 25, 2020

Requirements for Negotiability: Fixed Amount of money

 Requirements for Negotiability: Fixed Amount of money   

The amount of money to be paid by a negotiable instrument should be fixed and stated with certainty. If the instruments’ value were stated in terms of goods or services, it would be too difficult to ascertain   the market value of those goods and services at the time the instrument was to be paid. Art 735(b), 823(b) and 827(a) all require that commercial instruments be paid wholly in money.  

“Money” here refers to any medium of exchange adopted as currency by Ethiopia or foreign government. The fact that in Ethiopia commercial papers may state the amount of money in a foreign currency can be inferred from Article 777, (Bills of exchange) and Article 862 (cheque). However, there is no such reference with respect to promissory notes making it difficult to consider it as negotiable if the amount of money is stated in a foreign currency. (Still the mistake could be attributable to ‘bad’ drafting)

If the amount on the bill of exchange or cheque is payable by a foreign currency, the drawee has an option to make payment through the stated foreign currency or the equivalent value in terms of Ethiopia Birr. The rate of exchange as a matter of principle is to be calculated according to the rate on the date of maturity. Since cheque is payable on demand, the rate will be calculated according to the rate at the time of payment i.e. on the date of presentment. Whenever there is a default by the drawee to pay a Bill of exchange at maturity or to pay a cheque on the date of presentment, the holder at his option may demand payment according to the rate on the day of maturity or the day of payment in case of Bill of exchange, and with respect to cheque according to the rate on the day of presentment or day of payment.

The amount on a commercial instrument can include stated amount of interest. In the absence of any indication as to the rate of interest (For example if it simply states “with interest”, no interest will be payable (see Arts 739, 825(2) and Amharic version of Art 836.) The commercial code deviates from the general provisions of contract with regard to the effect given to statement such as “ with interest  “ or “ legal interest’   while Art 1751 and    of the civil code clearly recognize agreement by the parties stated as “ interest “or “ legal interest “as bearing  9%  interest on the total sum. Contrary to this, the commercial code does not give effect to interest unless the rate is specified by the parties (Art 739 (2) and 825 ) The code also limits payment of interest even if the rate is specified on the Bill of exchange and promissory note unless they are payable at sight or at a fixed period after sight (Art 739(1) cum 825(2). It will be difficult to reasonably justify why interest rate specified on the remaining types of instruments (i.e. payable at a fixed period after date and payable at a fixed date) is excluded by the code. The same can be said with respect to prohibition of speculation of interest in cheques. (see article 836 of the Amharic version of the code) In all instruments irrespective of the time of payment it is possible to calculate interest staring from the date of the instrument or some other date specified by the drawer or the maker.  Art 739(3) clearly applies this same mode of calculation of interest. Hence it can safely be argued that the limited approach followed by the code to interest on negotiable instruments is not due to any logical and practical problems emanating from business transactions.

 Determine in which of the following instruments does the statement of the amount make it non negotiable.

“I promise to pay B Birr 769 and all other sums which shall be due to him”

“Pay Z or order some money sufficient for his education”.

“ pay M or order Birr 250 including 9% interest three months after Date”

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