Tuesday, August 25, 2020

Rules of Construction (Factors not affecting Negotiability): Joint notes and bills

Rules of Construction (Factors not affecting Negotiability): Joint notes and bills

The essential validity requirements of a negotiable instrument must be fulfilled cumulatively to make it negotiable. Absence of any one of the factor makes the whole instrument non negotiable or invalid. However there are certain ambiguities or omissions which do not affect the negotiability of the instruments. The commercial code provides rules for clearing up ambiguous terms. However, in some instances there are no specific provisions; hence any gap should be filled through interpretation.

Joint notes and bills

As a matter of principle, the code requires that the maker, drawer, drawee and payee of a commercial instrument be specified. All these persons except the payee should have contractual capacity to bind themselves by a commercial instrument (Art 733). The payee as far as he does not transfer it to another person through endorsement can validly be a minor or any other person lacking capacity. Capacity is required according to Art 733 to create an obligation, not to be a recipient of right or be a beneficiary. For example a bill of exchange issued to minor is a valid & negotiable instrument. This being the case the code is silent as to the possibility of more than one maker, drawer, drawee or payee. To have an idea, let’s examine the following instruments.

I promise to pay X and Y or order Br 500


To Almaz and Abera

Pay X or order Birr 500 2 months after Date. Commercial Bank of Ethiopia.

To Harar Bank

Pay X or order Birr 500

Hana (signed)

Getachew (signed)

In the first case the promissory note is issued jointly in favor of X and Y. Abera and Almaz are jointly ordered to pay by the drawer in the 2nd example, hence they are joint Drawees. In the last example a cheque was issued by joint drawrs, Hana & Getachew. In the absence of any provisions in the commercial code governing such cases, one has to look for an answer in the general rules of contract. Art 1896 of the civil code co- debtors have joint and several liability. Therefore the joint drawee in the second example and the joint drawers in the 3rd example will assume joint and several liability, and the instruments are valid and negotiable, in the 1st example the promissory note is issued in favor of X and Y making them  according to Art 1910 of the civil code joint creditors. Joint creditors are not entitled to claim payment jointly and severally. Each joint creditor may require the maker or drawer of the instrument to pay him half of the total amount. (Art 1911 (2) civil code)

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