ChapterSixInstrumentsofPayment6.1NegotiableInstruments6.2BillsofExchange6.3Checks6.4PromissoryNotes

6.1NegotiableInstruments

6.1.1WhatAreNegotiableInstruments?

“Negotiable”means“transferablefromonepersontoanotherinreturnforconsideration”and“instrument”means“writtendocumentbywhicharightiscreatedinfavorofsomeperson”.Thus,anegotiableinstrumentisadocumentwhichcanbeusedtosecurethepaymentofmoneyandtherightswhichcanbetransferredeasilyfromonepersontoanother.

Inabroadsense,anegotiableinstrumentreferstoanycommercialtitleofownershipandmaytaketheformsofvaluablesecuritiesandevidences,suchasbillsofexchange,promissorynotes,checks,dividendwarrants,bearerbonds,billofladings,treasurybillsandcertificatesofdeposits.Allofthemsharetwocharacteristics:(1)representingaunilateralpromisetopayafixedamountofmoneytothelegitimateholderoftheinstrumentand(2)beingtransferableornegotiable.

Inanarrowsense,however,anegotiableinstrumentisawrittendocumentthatcontainsanunconditionalpromisebythedrawertopaythepayeeoranunconditionalorderbythedrawertothedraweetopaythepayeeafixedamountofmoneyatadefinitetime.Wewillstudythenegotiableinstrumentintermsofitsnarrowsense,andwewillmainlytalkaboutbillsofexchange,promissorynotesandchecks.

6.1.2CharacteristicsofNegotiableInstruments

1.Negotiability

Thetitletoanegotiableinstrumentcanbetransferredbydeliveryorbyendorsementfollowedbydelivery.Theword“title”herereferstotherightsembodiedinanegotiableinstrument.Ifpayabletothebearer,anegotiableinstrumentmaybetransferredbymeredelivery;ifpayabletoanamedpersonororder[Theword“order”hasdifferentmeaningswhenusedinthecontextofinternationalbusiness.],anegotiableinstrumentmaybetransferredbyendorsementanddelivery.

2.UnconditionalPromiseorOrdertoPay

Nomatterwhetheritisabillofexchange,apromissorynoteoracheck,anegotiableinstrumentmustcontainanunconditionalorderorpromisetopayafixedamountinmoneyatacertaintime.

3.Non-causativeNature

Theexistenceofanegotiableinstrumentisindependentoftheunderlyingcommercialorfinancialrelationshipbetweenthedrawerandthedrawee.Whenthepayeetransfersthebillofexchangetoatransferee,thelatterwillnotmindhowtheinstrumentisgeneratedandhisonlyconcernisthattheinstrumentisinaqualifiedformandcontainstheessentialitemsrequiredbytherelativenegotiableinstrumentlaw.

4.RequisiteinForm

Anegotiableinstrumentmustbeintheformofadocumentcontainingcertainrequireditems.Differentcountrieshavedifferentlawsonnegotiableinstrumentsandhencedifferentrequirementsfortheformofnegotiableinstruments.Despitethedifferences,therequisitesinformare,toagreatextent,quitesimilar.Ingeneral,anegotiableinstrumentmustcontainthefollowingessentialitems:(1)thenameofanegotiableinstrument,say“billofexchange”,“promissorynote”,or“check”;(2)unconditionalpromiseorordertopay;(3)afixedamountofmoney,representingthevalueoftheinstrument;(4)issuingdateandduedate;(5)nameandaddressofthedrawer,thepayee,andthedrawee;and(6)thesignatureofthedrawer.

6.1.3PartiestoNegotiableInstruments

Eachpartytoanegotiableinstrumentisdesignatedbyacertainterm,dependingonthetypeoftheinstrument.Someofthesetermsapplytoalltypesofnegotiableinstruments,whereasothersarerestrictedtoonetypeonly.Thesameindividualmaybedesignatedbyonetermatonestageandbyanotheratalaterstagethroughwhichtheinstrumentpassesbeforeitiscollected.Thesetermsincludedrawer,drawee,payee,acceptor,maker,bearer,holder,endorser,andendorsee.

Onepersonwritesanegotiableinstrumentinfavorofanother.Thepersonwhowritestheorder,ordrawsanegotiableinstrument,iscalledthedrawer.Inthecaseofapromissorynoteorcheck,thedrawerisalsocalledthemaker.Thedrawermustsignthebill.Thepersonwhoisorderedtopayabillofexchangeiscalleddrawee.Thedraweeofapromissorynoteisthedrawerhimself.Thedraweeofabillofexchangeisthepersontowhomthepaymentorderisgiven,andthedraweeofacheckisthedraweebank.Thepersontowhomanynegotiableinstrumentismadepayableiscalledpayee.Whenaninstrumentispayabletotheorderorbearer,thepayeemaytransfertheinstrumentbyendorsementanddeliveryorbymerelydelivery.

Thedrawer,thedrawee,andthepayeearethethreebasicpartiestoanegotiableinstrument.Billsofexchangeandchecksarethree-partyinstrumentswhilepromissorynotesaretwo-partyinstruments.

Adrawee,whoacceptsabillofexchange,thusindicatingawillingnesstoassumeresponsibilityforitspayment,iscalledanacceptor.Apersonacceptsabillofexchangenotimmediatelypayablebywritingonthefaceofthefollowingorsimilarwords:“Accepted,JamesPotter.”ThisindicatesthatJamesPotterwillperformthecontractaccordingtoitsterms.Thepersonwhoexecutesapromissorynoteiscalledthemaker.Anynegotiableinstrumentmaybemadepayabletowhoeverpossessesit.Thepayeeofsuchaninstrumentisthebearer.Iftheinstrumentismadepayabletotheorderof,say,“Myself,Cash”,itispayabletothebearer.

Anypersonwhopossessesaninstrumentistheholderifithasbeendeliveredtothepersonanditiseitherbearerpaperorpayabletothatpersonasthepayeeorbyendorsement.Thepayeeistheoriginalholderofaninstrument.Whenthepayeeofabillofexchangeoranotewishestotransferittoanotherparty,theinstrumentmustbeendorsed.Thepayeeisthencalledtheendorser.Thepayeemakestheendorsementbysigningonthebackoftheinstrument.Apersonwhobecomestheholderofanegotiableinstrumentbyanendorsementthatnameshimorherasthepersontowhomtheinstrumentisnegotiatediscalledtheendorsee.Thepersonwhoguaranteesthepaymentoracceptanceofaninstrumentiscalledtheguarantor.Typically,heisnotapartyalreadyliabletotheinstrumentandthepartyguaranteedcanbeanyobligorontheinstrument.

6.2BillsofExchange

6.2.1WhatAreBillsofExchange?

SupposeyousellyouriPadAirtoyourfriendSuzyfor$400.YougivetheiPadAirtoherbutagreethatsheonlyhastopayyou$400attheendofnextmonth.Therearedifferentthingsyoucandotomakesureshepaysyou.Yourfirstoptionistowriteacommandorordertoherthatshehastopayyou$400attheendofthenextmonth.Suzyhastosignthiswrittenorder(calledabillofexchange)toshowthatsheacceptstheorder.

AccordingtoBillofExchangeAct1882,abillofexchangeisanunconditionalorderofwriting,addressedbyonepersontoanother,signedbythepersongivingit,requiringthepersontowhomitisaddressedtopayondemandoratafixedordeterminablefuturetimeasumcertaininmoneytoortotheorderofaspecifiedpersonortothebearer.Incommonspeechsuchabillisfrequentlycalleda

draft,buta

bill

of

exchangeismorelegalaswellasmercantile.Byunconditional,wemeanthatpaymentoftheamountonthebillmustnotdependonacondition.IfIorderSuzytopaythe$400andifsheissatisfiedwiththeiPad,thisorderisnotunconditional.Thereisacondition,namelysheissatisfiedwiththeiPad.Ifsheisnotsatisfied,shedoesnothavetopaythemoney.

Paymentonabillofexchangeisnotalwaysmadetothepayee.Paymentmaybemadeto(1)thepayee,whoisthepersonspecifiedbythepersonwhosignsthebill;(2)thepayee’sorder,whoissomeoneelsenamedbythepayee,or(3)thebearer,whoisthepersoninpossessionofthebill,ifitisabearerbill.

Intheaboveexample,yousignedthebillandnamedyourselfasthespecifiedperson.Inotherwords,youwerebothdrawerandpayeeinthisexample.ThismeansthatSuzyhastopaythesumofmoneytoyou.Youcouldalsospecifysomebodyelseinthebill.If,forexample,youoweWendy$400,youcouldnameWendyasthepayeeinthebillandSuzywouldthenhavetopay$400toher.Wendycould,inturn,saythatsomebodyelsemustreceivepaymentinsteadofher.ThispersonwouldbeknownasWendy’sorder.

6.2.2EssentialsandNon-essentialsofValidBillsofExchange

Avalidbillofexchangehascertainessentialelementsthatneedtobepresent.Theseelementscanbeseeninthefollowingexample(SeeFigure6.1).

1.TheWord“Exchange”

Theword“Exchange”or“BillofExchange”or“Draft”mustbeclearlyindicatedinordertodistinguishitfrompromissorynotesandchecks.

2.AnUnconditionalOrderofWriting

Theordertopaymustbeunconditional,withoutanyextrarequirementterms.Thecorrectwayofexpressinganunconditionalorderis“Pay…”or“PleasePay…”.Sentenceslike“Ifthegoodsmeettherequirements,pleasepayACo.USD1,000.”or“Ishouldbepleasedifyouwouldkindlypay…”arenotunconditionalorders,butrequests.

Furthermore,“PayGBP3,000outoftheproceedsofsaleofmyfarmHaslemere”isnotvalid,either,becausetheproceedsofsale,infact,mightnotamounttoGBP3,000andtherewouldnotbeenoughmoneytopay.Then,whatisthedifferencebetweenthefollowingtwopaymentorders?

A.“PayfrommyNo.2A/CtoMaryBrownthesumofUSD100.”

B.“PayMaryBrownthesumofUSD100anddebitmyNo.2A/C.”

Thesecondoneisvalidwhilethefirstisnot.

3.ASumCertaininMoney

Thesumpayablemustbecertain.Anordertopayanamountplusinterestisavalidorderbecausetheamountcanbedetermined.Anordertopayanamountplusbankchargesis,however,notavalidorder,becausebankchargesarenotadefiniteamountofmoneybutcanvary.Thefollowingaresomestatementsconcerningamountexpressions:

A.“PaytotheorderofACo.thesumofRMB8,000onlyplusinterestcalculatedattherateof5%perannumfromthedatehereoftothedateofshipment.”

B.“PaytotheorderofACo.thesumofUSD1,000onlyconvertedintoHKDatcurrentrateofexchange.”

C.“PayfromtotheorderofACo.thesumof$100.”

Atellsusthevaluedateandtheinterestrate,sowecancalculatetheexactamountthatthedebtorhastopay.Hence,itisvalid.Bspecifiestheexchangerateas“current”,whichmeansthedateofpayment,sotheamountisexact.Asthe

dollar

orpesosign“$”isasymbolprimarilyusedtoindicatethevarious

peso

and

dollar

unitsof

currencyaroundtheworld,theamountofCisnotexact.

4.NameandAddressoftheDrawee

Thenameandaddressofthedraweemustbereasonablyclearanddefinite.Iftherearetwodrawees,itispropertowriteas“ToAandB”,not“ToAorB”.Thepurposeistomakethetwoliableforthepaymentjointly.Ifthedrawerandthedraweearethesameperson,orthedraweeisfictitious,thebillcanbeconsideredeitherapromissorynoteorabillofexchangeattheholder’soption.

5.SignatureoftheDrawer

Thebillmustconsistofasignedwrittenordertopay.Withoutthesignatureofthedrawer,nobillofexchangeisvalid.Thedrawermaybeanindividualoralegalentity.Ifitisanindividual,thepersonhimselfsignsthebillandifitisalegalentity,theauthorizedpersonsignsonbehalfoftheentity.Thismeansthatthedirectorofacompanywillprobablyhavetheauthoritytosignonbehalfofthecompany,butanofficeboyismostunlikelytohaveit.Ifhesodoes,thenthesignaturewillbeunauthorized.

Forexample,ifabillissignedbyR.Johns,theattorney,onbehalfofJamesHarrison,hisclient,thenitisexpressedas“For(orOnbehalfof,orForandOnbehalfoforPerpro)JamesHarrison,R.Johns,attorney.”Thesignatureofthedrawerisusedtoauthenticateabillofexchange.

6.DateandPlaceofIssue

Boththedateandplaceofissueareimportanttoaninternationalbill.Theimportanceofthedateofissuefirstliesinthefactthatitcanbeusedtodeterminetheexpirydate.Forexample,ifadraftisissuedonMay30,anditstatesthatthetenoris30daysafterissuingdate,thenthedebtorshouldpayonJune30.Theissuingdateisalsousedtoidentifythepresentationperiodofabillofexchange.Whenabillofexchangeispayablewithinacertainperiodaftersight,thecreditorshouldmakepresentationwithinoneyearafterissuingdate.Third,itcanbeusedtoidentifythecapabilityofissuer.

Whenapersonissuesadraftafterhisbankruptcy,thisdraftisinvalid;whenapersonissuesadraftbeforehisbankruptcy,thisdraftisvalid,andtheholderofthedraftcantakepartintheprocessofpropertyclearing.

Theissuingplaceiscrucialbecause,foraninternationalbill,whetherthebillisvalidornotdependsonthelocallawoftheissuingplace.Ifthereisnoindicationofsuchaplace,theplacewherethedrawerresidesisconsideredtheplaceofissue.

7.NameofPayee

Nameofpayeeisalsocalledtheorderofthedraft.Usuallytherearethreedifferentwaysofwritingthepayeeofabill.

First,restrictedorder.Abillmaybepayabletoanamedpersononlyortoanamedpersonnottransferable.Thiskindoforderimpliesthatthebillisanon-negotiableinstrument.Itmaynotbetransferredtoanotherperson.Thewaysofwritingsuchanorderare:“PayACo.only”,“PayACo.nottransferable”or“PayACo.”plus“Nottransferable”onthefaceofthebill.

Second,demonstrativeorder.Abillmaybepayabletotheorderofaparticularpersonortoaparticularpersonwithoutanywordsindicatingtheprohibitionoffurthertransfer.Forexample,“PayACo.ororder”,“PaytotheorderofACo.”or“PayACo.”.Therearenowordslike“Nottransferable”onthefaceofthebill.

Third,payabletobearer.Adraftmaybepayabletothebearerwithoutaspecificpersonasthepayeeorwithaspecificpersonbutfollowedby“orbearer”.Forexample,“Paybearer”or“PayACo.orbearer.”

8.Tenor

Tenorreferstothedateofpayment.Itmusteitherbedefiniteordeterminable.Ifthedateofpaymentisfixed,thereisaspecificdateonwhichpaymentcanbeenforced.Ifthedateofpaymentisdeterminable,theamountwillbepayableaftertheoccurrenceofaspecifiedevent,suchasthebillhavingbeenacceptedbythepayee,or,onadatedeterminablewithreferencetothedateonwhichthebillispresentedforpayment.Forexample,“Twoweeksafterthebillhasbeenpresentedforpayment.”

Abillofexchangemaybepayableinoneofthefollowingthreeways:

1)PayableonDemand

Paymentmaybemadeondemand,whichiswhenapersonpresentsthebillforpayment.Whenabillispayableondemand,atsight,oronpresentment,thebillisasightbill.Examplesare:“Ondemandpay…”,“Atsightpay…”,“Onpresentationpay…”,or“Pay…”.Forasightbill,whentheholderdulypresentsthebillforpayment,thedraweeshouldimmediatelyeffectpayment.

2)PayableataDeterminableFutureTime

Adeterminabledateisadatethatisnotfixed,butwhichcanbedetermined.Whenabillispayableatadeterminabletimeaftersight,theholdershouldfirstpresentthebilltothedraweeforacceptanceandthenontheduedateforpayment.Theduedateiscalculatedbasedontheacceptingdate.Forexample,abillmaybepayableat“30daysaftersight”,“60daysaftersight”,or“threemonthsaftersight”,etc.

Whenabillispayableatadeterminabletimeafterdate,theholderisalsorecommendedtopresentthebillforacceptancefirstandthenforpaymentontheduedate.Byacceptance,thedraweebecomestheacceptor,theprincipalobligorofthebill.Theduedateiscalculatedbasedonthedateofissue,though.Forexample,abillmaybepayableat“30daysafterdate”,“60daysafterdate”,or“threemonthsafterdate”,etc.

3)PayableonaFixedFutureTime

Abillmaybepayableonaspecifiedfuturedate.Itisalsorecommendedthattheholderpresentthebillforacceptancefirsttoascertainthedrawer’sliabilityofpaymentonthebill.

Inaddition,abillmaybepayableatafixedperiodaftertheoccurrenceofaspecifiedeventthatiscertaintohappen,thoughthetimeofhappeningmaybeuncertain.Forexample,abillmaybepayableat“60daysafterbillofladingdate”,“60datesafterpresentmentofthisdocument”,or“threemonthsafterthedeathofA.”Inthelastexample,“death”isdeemedtobeaspecifiedeventbecausethedeathofalivingmanisaninevitablefutureevent.However,atenorlike“threemonthsafterMarygetsmarried?”isnotproper,forMarymaykeepsingleallherlife.Marriageisacontingency,soitwillmakethebillinvalidevenifitmayreallyhappensomeday.

Non-essentialrequirementsarealsonormallypresentonabill.However,ifoneofthenon-essentialelementsismissing,itwillnotaffectthevalidityoftheinstrument.Non-essentialrequirementsincludeabillinset,anditisusuallystipulatedonthedraftthat“Paythisfirstbillofexchange(secondofthesametenoranddatebeingunpaidto…)”;placeofpaymentwheretheholdershouldpresenthisdraft;nameandplaceofrefereeincaseofneed;non-recourseclause;payableinothercurrency;limitoftimeforpresentation;abankerdesignatedaspayer;interestanditsrateetc.

6.2.3TypesofBillsofExchange

Onthebasisofdifferentcriteria,billsofexchangemaybeclassifiedintoseveraltypes:

1.InlandBillvs.ForeignBill

Inlandbillofexchangeisonewhereinboththedrawerandthedraweeareofthesamecountry,sayChina,anditisalsomadepayableinChina.Otherwise,itisaforeignbill.

2.CommercialDraftvs.Banker’sDraft

Acommercialdraftisissuedbyatraderonanothertraderoronabank,andthedrawerisatraderandthedraweemaybeatraderorabank.Acommercialdraftiscommonlyusedininternationaltradeinsettlementofpayment.Abanker’sdraftisdrawnbyabankonanotherbank,andboththedraweranddraweearebanks.Abanker’sdraftcanbeviewedasabankcheckwhichisasecuredpayment.Itisusedinsettlingpaymentobligationsbetweenbanks.

3.CleanDraftvs.DocumentaryDraft

Acleandraftisonethatispaidwithoutthepresentationofanyotherdocumentsattached.Abanker’sdraftisusuallyclean.Adocumentarydraftisonethatshouldbepaidonlywhencertaindocumentshavebeenattachedtoandpresentedtogetherwiththebillofexchange.Commercialdraftsareusuallydocumentary.Themostimportantdocumentisbillofladingthatrepresentsthetitletothegoods.

Thesetypesofbillsarenotmutuallyexclusive.Forinstance,billscanbedocumentary,commercial,andusanceatthesametime.

4.SightBillvs.UsanceBill

Basedonthetenor,wecandividebillsintotwotypes:sightbillsandusancebills.Whenthedrawer,namelyexporter,expectsthedrawee,i.e.,importer,tomakethepaymentimmediatelyuponthebillbeingpresentedtohim,itiscalledasightbill.Asightbillissometimescalledasightdraft,ademanddraft,orademandbill.ThecorrespondingtermsofpaymentisreferredasD/P.Sightbillsaremostcommonlyusedininternationaltradeforeithercreditreasonsorforthepurposeoftitleretention.Thebuyercannottakedeliveryofgoods/documentswithoutmakingpayment.

Ausancebillisonethatispayableinaspecifiednumberofdaysafter(1)itsdateofissue;(2)itsdateofacceptance;(3)thedateofB/Loratafixedfuturedate.Thespecifiednumberofdaysiscalledtheusanceperiod.Ausancebillisalsocalledatermdraftoratimedraft.Ausancebillisdrawnforthepurposeoffinancingthesaleortemporarystorageofspecifiedgoodsforaspecifiednumberofdaysaftersight.Termsofsettlementbasedonausancebillimplytrustonthepartoftheexporter.Byagreeingtodrawausancebill,theexporterisgrantingcredittermstotheimporter.

Afterthebillisacceptedbytheimporter,theexporterhasonlytheimporter’spromisetopayatthematuritydate.Thecollectingbankisnotresponsibleforthepaymentatthematurityofthebill.Assuch,itofferslesssecuritythanasightbillsincesightbilldemandspaymentpriortoreleaseofshippingdocuments.Theusancebill,ontheotherhand,allowsthebuyertoacquireshippingdocumentstoobtainmerchandisewhenacceptingthedraft,eventhoughthebuyercanactuallydeferpayment.

6.2.4ProcedureofUsingBillsofExchange

Theprocedureofusingabillofexchangealsoappliestoapromissorynoteoracheck.That’swhyitisdiscussedinthissection.Abillofexchangeisathree-partyinstrument.Adrawer,adraweeandapayeearethethreebasicparties.TheirrelationsandtheprocedureofusingabillofexchangeareillustratedinFigure6.2andthefollowinglist.

1.Issuance

AccordingtotheUKBillsofExchangeAct1882,issuancemeans“thefirstdeliveryofabillornote,completeinformtoapersonwhotakesitasaholder.”Toissueabillcomprisestwoactsbythedrawer:oneistodrawandsignabill;theotheristodeliverittothepayee.Thebillmustbecompleteinform,thatis,itmustmeettherequirementsstipulatedbythenegotiableinstrumentlawintheplaceofissue.

Deliverymeanshandingtheinstrumenttoanotherperson.Normally,liabilityonabillarisesnotbyasimplesignaturebutbyasignatureplusdelivery.

Deliverycanbeclassifiedintoactualdeliveryandconstructivedelivery.Actualdeliverymeansthephysicalhandoverofabillwhileconstructivedeliveryisthenon-physicalhandoveracts,whichshowstheimmediateintentiontodeliver.Forexample,whenabillisissuedandisbeingdeliveredthroughpost,thiscanbetakenasthedeliveryofthebill.

2.Endorsement

Endorsementmeansthewritingofaperson’snameonthefaceorbackofanegotiableinstrumentoronaslipofpaperattachedtheretowhichisdoneforthepurposeofnegotiation．Usuallytheendorsementisonthebackoftheinstrument.Endorsementalsocontainstwoacts:(1)thepayeeorholdersignsonthebackofabill;and(2)deliversittotheendorsee.Onlywhenthepayeeisademonstrativeorder,canbethebillnegotiatedbyendorsementanddelivery.Ifthepayeeisarestrictiveorder,thebillcannotbeendorsed.Ifthebillisabearer-orderbill,itcanbenegotiatedbymeredeliverywithoutendorsement.

Endorsementmaytakeanyofthefollowingthreeforms:

Blankendorsement.Whentheendorserjustputshissignaturewithoutspecifyingtheendorsee,theendorsementiscalledablankendorsement,orgeneralendorsement.Theeffectofsuchanendorsementistorendertheinstrumentpayabletothebearereventhoughitisoriginallypayabletoorder.Nofurtherendorsementisneededforitsnegotiation.Forexample,ifabillispayableto“Tobyororder”,andTobymerelysignsonthebackofit,thenitbecomesablankendorsement.InChina,however,blankendorsementisnotallowed.

Specialendorsement.Whenalongwithendorser’ssignature,thenameoftheendorseeisspecified,theendorsementiscalledspecialendorsement,orendorsementinfull.Thus,whenthebillstates,“PayAororder”,andissignedbyB,thepayee,itconstitutesaspecialendorsement.Ablankendorsementmaybeconvertedintoaspecialendorsementbytheholderbymerelyaddingabovetheendorser’ssignature,adirectiontopaytoanyotherperson.Bydoingso,theendorserdoesnotincuranyresponsibilityofanendorser.Forexample,thereisabillendorsedinblankbyToby.Henry,theholderofthebill,mayconvertthisblankendorsementintospecialendorsementby,say,addingthewords“PayMaryororder”,aboveToby’ssignature.Henry,inthiscasecannotbeheldliableonthebill,ifitisdishonored.

Restrictiveendorsement.Anendorsementisrestrictivewhenitprohibitsfurthernegotiationofanegotiableinstrument.Normally,therestrictiveendorsementincludesrestrictivewording.Sometimes,arestrictiveendorsementmerelyauthorizestheendorseetodealwiththebillasdirectedbuthasnointentiontotransfertheownershipofthebill.Forexample,ifabillisendorsed“PayTobyonly”,or“PayTobyfortheaccountofJohn”,itcannotbenegotiatedfurther.

3.Presentment

Presentmentofanegotiableinstrumentismadefortwopurposes:(1)forpaymentand(2)foracceptance.Abillmustbedulypresentedforpaymentifitisasightbill,ordulypresentedfirstforacceptanceandthenforpaymentatmaturityifitisausancebill.

Billsmaybemadepayableonaspecifieddateorafterthespecifiedperiodoftime.Thedateonwhichpaymentofabillfallsdueiscalledmaturity.

4.Acceptance

Acceptanceofabillistheindicationbythedraweeofhisassenttotheorderofthedrawer.Acceptanceisthesignatureofthedraweeofabill,whohassignedhisassentuponbillanddelivereditorgivennoticeofsuchsigningtotheholdertosomepersononhisbehalf.Bysigninghisnameacrossthefaceofthebill,thedraweeisknownastheacceptorandprimarilyliableforthepaymentofthebill.Theacceptorpromisesthathewillpaywhenitfallsdue.Likeendorsement,acceptanceincludestwoacts:(1)thedraweesignsonthefaceofthebill;and(2)thebillisdeliveredtothepersonpresentingforacceptance.

5.Payment

Paymentofabillisgenerallymadebythedraweeoracceptor,butintheeventofdishonor,theholdermaydemandpaymentfromanypriorendorserorthedrawer.Onlybypaymentinduecoursecantheobligationofthebillbedischarged.Paymentinduecoursemeansthatpaymentistobeonlymadebythedraweeoracceptoratoraftermaturityofthebilltotheholderthereofingoodfaithandwithoutnoticethathistitletothebillisdefective.Inordertorelievehimselffromtheliabilitytowardsthedrawer,thedraweeoracceptormustpaythebillofexchangeinduecourse.

Oncethepaymenthasbeenmadeinduecourse,allpartiesliableontheinstrumentarerelievedoftheirliabilitythereon,evenifitissubsequentlyfoundthatthepaymenthasbeenmadetoawrongperson.Thefollowingconditionsmustbesatisfiedinorderfora