Requirements for Negotiability: Payable on Demand or at a definite time
Arts 735(d) 758,759,769,825)
The commercial code after generally stating the requirement of specification or indication of the time of payment of Bills of exchange and promissory note (Art 735(d) cum 823 ( c), lists down four types of time of payment in Art 769 cum Art 825(b). The time of payment for cheque is always on demand or at sight (Art 854).
Generally speaking a commercial instrument may be payable a) on Demand or b) at a definite time. Clearly to ascertain the value of a negotiable instrument it is necessary to know when the maker, drawee or accepter is required to pay. It is also necessary to know when the obligations of secondary parties will arise. Further it is necessary to know when an instrument is due, in order to calculate interest (If interest is specified on the instrument) and also to determine when the period of limitation may apply.
A) Payable on demand
An instrument may be payable on demand in two cases. First when it says nothing about when payment is due. [736(a), 824(a)]. Secondly, when the instrument expressly states that it is payable “on demand”, “at sight” or “on presentment.” A cheque is always regarded by law as payable on demand or at sight (Art 854). It is by definition a demand instrument. When an instrument is payable on demand, the holder is entitled to collect payment any time he presents it to the drawee. However, he must present it with in the period of time prescribed by law for presentment. For instance Bill of exchange and promissory note payable at sight or on demand should be presented for payment within a year of their date (Art 770(a) an 825(1)(b)] This time may be shortened both by the drawer and the endorsers. However, only the drawer can extend this one year period of time. He can also prohibit presentment before a fixed date.
Pay X or order Birr 1,ooo. Do not present before 3-6-1996.
In the above instrument the holder is not entitled to present it for payment before 3-6-1996. He can present it at any time within year after the expiry of 3-6-1996. According to art 770(2) the one year period for presentment shall run from 3-6-1996. The period of time for presentiment for payment of a cheque is six moths. The law requires that it should be presented within six months (Art 855). Unlike Bills of exchange and promissory notes the drawer or subsequent endorsers are not given the right to shorten or extend this period of time. The 6 months period shall run from the date written on the cheque. A cheque dated 1-6-1999 may be actually be issued (be delivered by the drawer to the payee) on 1-4-1999. since the 6 months period runs from 1-6-1999 the last date of presentment will be 1-12-1999.
B) Payable at a definite time
If an instrument is not payable on demand to be negotiable it must be payable at a definite time specified on the face of the instrument. The maker or the drawee is under no obligation to pay until the specified time. Art 769(1) of the code enumerates 3 types of a definite time.
i) Fixed period after sight
This refers to a definite period of time starting from the time it is presented to the drawee for acceptance. The exact time is calculated by first determining the date of presentment for acceptance. Such types of instruments are required to be presented within one year of their date save any change by the drawer or endorsers (Art 759)
Pay to the order of Almaz 3 months after sight
The time of payment of the above instrument is 3 months after it is presented by Almaz to the drawee for acceptance.
ii) Fixed period after Date
The period of time in this case runs from the date appearing on the face of the instrument.
Pay Gebru three months after date. Let’s assume this instrument is dated 27-03-2005. Hence the date of payment will be 3 months from such date which is 27-06-2005.
iii) Fixed date
A fixed date refers to an exact future time indicated by the drawer for payment
Pay Almaz or order birr 100 on January 1,1981.