Tuesday, August 25, 2020

Rules of Construction (Factors not affecting Negotiability): Date

Rules of Construction (Factors not affecting Negotiability): Date

The date when the instrument was made is one of the negotiability requirement in Articles 735(9), 823(f) and 826(d).The code does not make any exception to undated Instrument. The date of an instrument is necessary to determine a definite time for payment and to calculate interest, if there is any specification of interest rate. If the instrument is a demand instrument date may not be necessary to determine the time of payment of the instrument.


But even in demand instrument date is necessary to determine whether it is overdue or not. An instrument becomes overdue if it is presented for payment after the expiry of the period of time provided by law for its presentment. A Bill of exchange or a promissory note payable at sight should be presented within a year of its date (Articles 770 and 825 (1) (b)]. Similarly a cheque should be presented within six months of its date. Unless the instrument contains a date it will be impossible to determine whether the payee or the holder has presented it with in one year or six months.

Therefore, the conclusion we should reach concerning Ethiopian law is that an undated commercial instrument is not negotiable. According to Indian law a negotiable instrument without a date is not necessarily invalid. If the legal requirements for the validity of an instrument are fulfilled, the instrument is valid and the date of execution can be proved by oral or other evidence. The holder in due course or the payee can insert the true date on the instrument and such insertion is not considered to be a material alteration. According to the uniform commercial code, unless the date of instrument is necessary to determine a definite time for payment, the fact that an instrument is undated does not affect its negotiability.

The stringent rule of the commercial code regarding date is also relaxed in some exceptional circumstances. An undated Bill of exchange, promissory note or cheque at the time of issuance, becomes valid or negotiable, if a date agreed by the maker or drawer to be filled in, is inserted by the payee or subsequent holder (Arts 744, 825(2), 841)

Example

On January 1, 2006, Ato Abera issues an undated cheque to Almza or order. Abera has clearly informed Almaz that she should write the date on the cheque as “January 26,2006”. Almaz by inserting this agreed date can make the otherwise non negotiable cheque, negotiable.

In the absence any clear instruction by Abera as to the date, Almza should write the true date of issuance of the instrument (i.e. January 1, 2006) the silence of the drawer constitutes an implied agreement that the true date of issuance will be inserted.

Sometimes, for different reasons, the payee or holder may write a date contrary to the one expressly agreed to by the maker or drawer. For instance Almaz may write the date as “February 19, 2006”. In this case Article 744,825(2) and 841 tell us that this fact may be raised as a defense against the one who wrote contrary to the agreement (in our example against Almaz.) The defense is not to make the instrument invalid but should be limited to issues attached to date of payment. Hence insertion of a date contrary to the agreement may be raised by Abera against Almaz, if there is any dispute regarding time of payment, time of presentment (whether it is overdue or not) or calculation of interest, if any.

The defense could be  raised only against the person who wrote the instrument and any subsequent holder who acquires it in bad faith (for instance one who has knowledge that a different Date was inserted by Almaz). It could not be raised against the holder in due course meaning the person who acquires it in good faith and without knowledge.  

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