Negotiable Instruments - Summary of Lectures 2014, by Rautta-Athiambo, 1 PDF

KENYA SCHOOL OF LAW
______
THE ADVOCATES TRAINING
PROGRAMME
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COMMERCIAL TRANSACTIONS
___________________________
NEGOTIABLE INSTRUMENTS
(PART ONE)
____________________________
by
Rautta-Athiambo
Introduction
The law recognizes peoples rights in respect of real or

personal property.
With respect to the latter (personal property), there are
two (2) kinds of property:
(a) Choses in Possession
-These are corporeal property (tangible, exist in
material form) rights which can be perceived by the
senses and may be physically possessed or transferred,
such as cash, jewellery, a book, a watch, a table, goods.
-They represent property rights exercised in relation
to objects which have material or physical existence.
-Such rights can be protected physically.
Negotiable Instruments in Kenya by RauttaAthiambo [2014]
Introduction contd.
(b) Choses in Action

-These are incorporeal property rights.
-Incorporeal means having no material existence; not
of tangible nature.
They may be protected by means of legal action.
Rights incorporated in negotiable instruments, rights of
an inventor arising out of a grant of a patent in respect
of his invention, shareholders rights, rights of a
copyrights holder, rights of a trader in respect of his
trademark, trade name and goodwill are instances of
choses in action.
Introduction contd.
Negotiable instruments are a class of documents that

are today freely used for or as payments in commercial
transactions and monetary dealings within a country,
territory or economic region.
-To facilitate payments within any given territory,

country or regional economic block, the relevant
authorities often legislate on the currencies or other
modes of payments to be used as legal tender, within
the respective payment systems.
NEGOTIABLE INSTRUMENTS
The principal means or mode of realizing payments

within Kenya is through various negotiable instruments
recognized under the law.
They are referred to also as commercial papers.
In spite of developments represented by instantaneous
money transfers via telecommunications networks,
negotiable instruments are still used extensively as
means of commercial payment globally.
Moreover, the law relating to these instruments still
summarizes many basic principles and concepts of
existing commercial law today.
Negotiable instruments contd.
Mercantile custom and usage still wields an important

influence in this field.
Certainty guaranteed under the law relating to
negotiable instruments is still prized in commercial
transactions.
The protection offered by negotiable instruments of the
bona fide purchaser for value - i.e., the principle that a
good faith holder for value acquires a better title than
his transferor - is still paramount in trade.
Negotiable instruments contd.
Negotiable instrument is not defined in any Kenyan

legislation; but it seems to denote any writing or record
that can be exchanged or transferred as money or for
money.
The word negotiable is a derivative of the word
negotiate.
To negotiate here means to transfer (a commercial
paper) in return for value received: see p.762 Collins
English Dictionary and Thesaurus.
Definitioncontd.
Instrument originates from the Latin word

instrumentum, a document or deed.
Also means a writing containing a contract or a a
formal record.
I.e., a written document by which a right is created in
favour of a person.
Definitioncontd.
Taken together the two words denote a writing or
record that can be exchanged or transferred as or
for money.
Under the law, a negotiable instrument is, basically, a
document which promises the payment of a fixed
amount of money and which may be transferred from
one person to another person.
Thus the term negotiable instrument literally refers to
a document containing rights that can be transferred by
delivery.
In the United States, Articles 3 and Article 4 of the
Uniform Commercial Code, 1952, (UCC) govern the
issuance and transfer of negotiable instruments.
NEGOTIABLE INSTRUMENTS IN KENYA
The history of negotiable instruments in Kenya is

closely tied to their development in Europe, esp. in
Great Britain.
Indeed Kenyas principal legislation governing the
subject, the Bills of Exchange Act (BEA), is largely a
copy work of the 1882 United Kingdom legislation by
the same name.
10
Negotiable Instruments in Kenyacontd.
The main and well known commercial papers created by statute,

the BEA, are:
Bills of exchange;
Cheques; and
Promissory notes.
These are by no means the only negotiable
instruments.
Others have been created over the years by
mercantile usage or custom.
11

Instruments negotiable by custom or usage.
The following instruments, have acquired the character of
negotiability by the usage or custom of trade.
Examples:
treasury bills,
bankers drafts,
bearer securities, etc
bank notes,
12

share warrants,
bearer debentures,
dividend warrants,
certificates of deposit,
bearer scrips,
share certificates with blank transfer,
floating rate notes,
etc.
The above list is not exhaustive.
13

Transferable but non-negotiable instruments
Some common documents which are freely transferable
but are not negotiable are:
(i) Travellers cheques because of the condition
attached, i.e., drawer must sign in front of the payee;
(ii) Bills of lading because they represent title to
property, and not title to money;
(iii) Postal or money orders;
14
(iv) Delivery orders;

(v) Registered share certificates;
(vi) Registered debentures;
(vii) Insurance policies;
(viii) I.O.U.
15
SOURCES OF LAW
The principal sources of the law relating to negotiable

instruments in Kenya are:
the Bills of Exchange Act, Chapter 27 (also referred

to as BEA);
the Cheques Act, Chapter 35;
English common law; and
English rules of equity.
The genesis of the last two is well known to

virtually all law students.
16
Sources of law contd.
BEA
The BEA largely is a copy work of the English statute
of 1882, which largely codified the then existing caselaw, which in turn had developed from comprehensive
rules created by merchants earlier.
It provided, and continues to provide, a code for the
creation of bills and cheques.
It came into effect here on 14.05. 1927.
BEA applies to bills, cheques and promissory notes.
17

By s.2, bill means bill of exchange and note means a
promissory note (see definition at s.84); and, by s.73, a
cheque is a bill of exchange drawn on a banker payable
on demand.
NB: (1). BEA does not mention other negotiable

instruments; but its principles are often used by
courts in cases involving other types of
instruments.
18

(2). All cheques are by law bills but not all bills of
exchange are cheques.
(3). Bills are relatively quite uncommon.
(4). The most common commercial
document known today is the cheque.
(5). Promissory notes, other than bank notes,
are mainly used in medium-term export
credits today.
19
Sources of law contd. Cheques Act

The Cheques Act, borrowed also from English Act
1957 of the same name, came into effect on 28.07.1968.
It is mainly a procedural statute.
It was enacted to reduce the endorsement on cheques.
In practice, cheques were almost wholly issued to
payees who presented the same to bank for encashment
or collection.
They had long ceased to be instruments of transfer.
Under this Act banks are not required to examine
endorsements and need not dishonour cheques for
irregularities in endorsements.
20

Common law & Equity
By s.3 of Judicature Act, cap 8, common law and
doctrines of equity are, along with but subject to the
Constitution and statutes, sources of Kenyan law.
Common law today is simply the body of law derived

from judicial decisions as opposed to the Constitution
and statutes.
21
Equity consisted originally in a body of rules and

procedures in England under which the Chancellor as
the keeper of the Kings conscience rendered just
relief from the rigours of decisions of courts of law.
In both U.K. and Kenya today all courts exercise

jurisdiction in conformity with both common law and
equity.
22
BILLS OF EXCHANGE
Bills of exchange, as negotiable instruments, are still

used widely in international trade.
E.g., where a seller of goods allows his overseas buyer a
period of credit but needs access to funds in the
interim, he may draw a bill of exchange in his own
favour on the buyer or, more usually, on a bank that
has undertaken to pay under the terms of a
documentary credit.
With credit period agreed, the bill will be payable at a
future date, e.g. 90 or 180 days after sight.
23
Bill of exchange contd.
The bill of exchange is thereafter presented by the seller

to the buyer for acceptance.
In the case of a documentary credit transaction, the
seller presents to the bank for acceptance.
Where a bill has been accepted the seller may proceed
to discount it to his own bank for immediate but
reduced payment.
The sellers bank assumes the duty to collect payment
from the buyer, or other party that has accepted
liability, when the bill matures.
24
FORM OF BILL OF EXCHANGE 1

To MINO DUGU LTD
Ligisa Street, Chweya Town
Kenya (drawee and address).
Date: 28th June, 2014

<Stamp Duty>
Kshs. 100,000/=
ON DEMAND [(or) AT SIGHT (or) ON PRESENTATION]
PAY to NIT NDEKLE (payee) or order [(or) (payee) or bearer
(or) my order] the sum of [Kenya shillings one hundred

thousand] for value received.
K. KEKO
(Signature of drawer)
25
BILL OF EXCHANGE: ESSENTIAL ELEMENTS
A bill of exchange is a written promise of payment

from one person to another that is legally binding.
It is defined by law as an instrument in writing
containing an unconditional order, signed by the maker,
directing a certain person to pay a sum certain in money
only to, or to the order of, a certain person, or to the
bearer of the instrument: section 3 (1) BEA.
26
Essential elements of a billcontd.

A bill of exchange must be in writing;
contain an order to pay;
be an unconditional order;
have three certain parties: drawer, drawee and payee;
be signed by the drawer;
contain an order to pay money, which must be a sum
certain; and
be duty-stamped: ss 5, 32 Stamp Duty Act and Sch.
(items 4 and 5).
NB: Serial number, date, place and statement as to
consideration do not affect validity of a bill of exchange.
27
Essential elements of a billcontd.
Stamping
A bill or note must be drawn on a stamped paper, and
the stamp must be an impressed stamp: see s. 23, Stamp
Duty Act and Eric Jean Daniel Stolz v. Mohammed Hussein
Abdulla Jaffer, Civil Cause No 26 of 2004.
28
Particulars of a bill, in summary
1. Name of drawer
2. Address of drawer
3. Signature of drawer
4. Amount certain
5. Instructions (e.g. Pay on demand or after 30 days etc.)
6. Name of Payee
7. Name of drawee
8. Address of drawee
9. Date
10. Stamp Duty
29
FORM OF CHEQUE
Date 28th June, 2014
KALOT BANK LIMITED <Stamp duty>
Sombro Road,
KALOT
(Drawee & Address)
Kshs. 50,000/=
(Sum certain in figs)
Pay MINO DUGU (Payee)
Kenya Shillings.. FIFTY THOUSAND only.(Sum in words)
.
Nit Ndekle
Cheque Number
(Drawer)
Bank Code Account Number
..
30
FORM OF PROMISSORY NOTE
I, SIMBI of NYANDIWA BAY, do promise to pay

NYAM GONDHO the sum of Kshs. 300,000/= .
Repayment is to be made in the form of 12 equal
payments at 5 per cent interest or Kshs.25,000/= plus
interest payable on the 1st of each month, beginning on
1st July 2014 until the total debt is satisfied.
Signed
Simbi
28th June 2014
31
NEGOTIATION
When a bill of exchange, or cheque or promissory note is
transferred to any person, so as to constitute that
person the holder thereof, the instrument is said to be
negotiated.
There are two methods of negotiation: 1. Negotiation by delivery
If an instrument is payable to bearer, it is
negotiable by delivery thereof.
2. Negotiation by endorsement and delivery
If an instrument is payable to order, it is
negotiable by the holder by endorsement and
delivery thereof.
32
Negotiationcontd.
Endorsement
It means writing or signing of a persons name on the
back of an instrument for the purpose of negotiation.
The person who endorses the instrument is called the
endorser and the person to whom it is endorsed is
called the endorsee.
33
Negotiationcontd.
Delivery
This refers to the actual handing over of the document
(negotiable instrument) by way of transfer of
possession, actual or constructive, from one person to
another.
34
Negotiationcontd.
In each case, the transferee must take the instrument-for value,
-in good faith, and
-without notice of conflicting claims or defences, if
any: cf. s. 29, BEA.
35
PARTIES TO A BILL OF EXCHANGE
The person who makes the bill is called the drawer.

The person who is directed to pay is called the drawee.
The drawee becomes the acceptor when he/she signs
the bill.
The person to whom the payment is to be made is
called the payee.
Should the bill be negotiated (i.e. transferred) then
anyone holding or endorsing it becomes a party to the
bill and liable upon it.
36
Parties to a bill of exchange contd.

(a) Holder
A holder is any payee or endorsee in possession of a bill
or note or the bearer thereof: see s. 2, BEA.
A holder must have possession of the bill.
But the possessor may not necessarily be the owner of
the bill.
A person who takes an order bill through a forged
endorsement is not a holder because he is not the
endorsee of it.
37
Rights of holder
A simple holder may enforce the bill against(i) against any person who has signed it; and
(ii) against the transferor from whom he got it,
whether or not the transferor signed the bill.
To acquire full rights in respect of a bill, the holder
must give value for it by himself or should have
obtained it from a person who gave value for it.
By law, there is a presumption (rebuttable by defendant
in action by the holder) that possession of a bill by the
holder is supported by valuable consideration.
38
(b) Holder for value

A holder of a bill in respect of which value has been
given at any time is deemed to be a holder for value as
regards the acceptor and all parties to the bill who
became parties prior to that time: s. 27, BEA.
Valuable means:
(a) any consideration enough to support a simple
contract;
(b) an antecedent debt or liability.
Once a bill/cheque is given for value, all subsequent
holders are holders of value.
39
Value is co-extensive with contractual concept of

consideration.
Anything which in the law of contract would be treated
as consideration is value.
E.g. goods, money, services or in remission of an
existing liability as the purchase price of the transfer.
NB: Value given need not be adequate; but it must be
something recognized by the law as capable of being
consideration.
40

(c) Holder in due course
This is someone who takes the bill complete and
regular on the face of it (on both sides of the bill, i.e.
face and back of it)(i) before it was overdue;
(ii) without notice of any previous dishonour, if any;
(iii) in good faith and for value; and
(iv) without notice of any defect in the transferors
title at the time the bill was negotiated to him.
41
Complete means it has all essential formal

requirements as per BEA, i.e. unconditional order; in
writing, addressed to one person, etc.
Regular means that there is no obvious abnormality
such as erasure, additions not in conformity with rest
of the document, e.g. different ink, endorsement in
name different from that of payee.
42
Complete and regular means also that:

(i) there has been no forgery of essential
endorsement;
(ii) the bill is complete, without any missing
sections;
(iii ) the bill must not be overdue and must be taken
without notice of previous dishonour;
(iv) the holder took the bill in good faith;

(v) he took the bill for value; and
43
(vi) at the time the bill was negotiated to him, he had no

notice of any defect in the title of the person who
negotiated it.
A payee of a cheque cannot, therefore, be a holder in
due course, as it was issued, or merely given, and not
negotiated, to him within the meaning of ss. 29 and
31, BEA: see Re Jones Ltd v. Waring and Gillow Ltd (1926)
AC 670, HL, per Viscount Cave, LC.
44
Similarly, an innocent 3rd party who gives value in good

faith cannot, nevertheless, be a holder in due course of
a promissory note which is not complete and regular on
the face of it: see Arab Bank Ltd v. Ross (1952) 2 QB
216, where a partner in Fathi and Fay sal Nabulsy
Company endorsed two promissory notes Fathi and Fay
sal Nabulsy, without the word Company and
discounted them to the Arab Bank.
45

Rights of holder in due course
(i) He is an absolute legal owner of bill/cheque.
(ii) His title cannot be disputed and is not affected by
any defect in the previous title or by any counterclaims
(e.g., claims of set-off).
(iii ) He can enforce against any prior parties, sue all
prior parties, if necessary, in his own name if
bill/cheque is not paid/honoured.
(iv) He can pass a perfect title.
46
Holder in due course by derivation
A holder who derives his title to a bill through another

holder I due course will be entitled to all the rights of
the latter holder as regards the acceptor and all parties
to the bill prior to that holder if he is himself not a
party to any fraud or illegality affecting the bill: s. 29(3),
BEA.
47
In Jade International Steel und Eisen GmbH & Co KG v.

Robert Nicholas (Steels) Ltd. [1978] QB 917, CA, it was
held that even a person who draws a bill in his own
favour can benefit from this provision where the bill is
negotiated from him, as payee, to an endorsee, who is a
holder in due course, and later renegotiated back to the
original payee by that endorsee: See Commercial Law,
Text, Cases and Materials by L S Sealy and RJA Hooley,
4th edition, pp. 560-1.
In a commentary the authors above suggest that so
long as he is not a party to any fraud or illegality even a
gratuitous payee can enforce a bill under this section.
48
CAPACITY OF PARTIES
The capacity of a person to incur liability as a party to

a bill of exchange or a cheque or a promissory note is
co-extensive with his capacity to contract: s.22,
BEA.
(a) Minor
A minor may draw, endorse, deliver and negotiate a
negotiable instrument so as to bind all parties except
himself.
The holder is entitled to receive payment of the bill
and enforce against any other party to it: s. 22(2),
BEA.
That is, he may operate as a channel to convey title
and liability.
49
Capacity of parties contd.

(b) Person of unsound mind
Bills and notes drawn or made by a person of unsound

mind are void as against him if at the time of the
execution of such instruments, he is not capable of
forming a rational judgment.
However the other parties continue to be liable.
50

(c) Corporation
A corporation, being an artificial person, can exercise

only those powers which its memorandum or articles of
association confer on it.
By proviso to s.22, BEA, a corporation cannot make
itself liable as drawer, acceptor or endorser of a bill
unless it is competent to do so under the law for the
time being in force relating to corporations.
If it exceeds its powers and executes a bill, cheque or
note, the instrument is void and cannot even be ratified
by a subsequent unanimous resolution of all of its
members.
51
Furthermore, even a bona fide holder in due course

cannot make the corporation liable on such an
instrument.
The Companies Act provides that a bill of exchange or

promissory note shall be deemed to have been made,
accepted or endorsed on behalf of a company if made,
accepted or endorsed(i) in the name of; or
(ii) by; or
52
(iii) on behalf of; or

(iv) on account of,
the company by any person acting under its express or
implied authority: see s.35.
NB: Execution of cheques is excluded under this
provision.
A trading company has implied power, to bind itself by
negotiable instruments.
However, a non-trading company must obtain express
power, to draw, make endorse, or accept negotiable
instruments.
53
(d) Agent
An agent who signs a negotiable instrument for his
principal may bind his principal provided(1) he signs the principals name or states on the
face of the instrument that he signs as agent, and
(2) he acts within the scope of his authority.
An agent may also sign by procuration, a notice that he
has but a limited authority to do so: see e.g. s. 25,
BEA.
54
An agent becomes personally liable on the instrument if
(a) he puts his signature to an instrument without

stating that he signs as an agent; or
(b) he executes an instrument in excess of authority
accorded to him.
Furthermore, the mere addition to his signature of
words describing as agent or that he acts in a
representative character will not exempt him from
personal liability: s. 26, BEA.
55
In Liverpool Bank v. Walker, [1859] 4 De G. & J. 24, the

manager of a company, in accepting a bill, signed
stating his name and adding the word Manager. The
court held that he was personally liable on the bill.
However, in Alexander v. Sizer, [1869] L> R. 4 Ex. 192,
a managing director signing For the company, was
held not liable personally.
56
(e) Partner
In a trading firm each partner has implied authority to
bind his co-partners by drawing, endorsing, accepting
or negotiating bills, notes and cheques.
By s. 7, Partnership Act, Cap. 29, every partner is an
agent of the firm and his other partners for the purpose
of the business of the partnership.
57
The act done by the partner in question must- be done in relation to the partnership business;
- be an act for carrying on business in the usual
way; and
- be an act done as a partner, and not as an
individual.
58

Further, any act or instrument relating to the business of a
partnership and done or executed in the firm-name, or
in any other manner showing an intention to bind the
firm, by any person authorized to do so, is binding on
the firm.
This is regardless whether such person is a partner or
not: s. 8, Partnership Act.
This provision does not affect the general rule relating

to execution of deeds or negotiable instruments: see
proviso, s.8, ibid.
59
TRANSFER OF BILL OF EXCHANGE
A bill is negotiated when it is transferred from one

person to another in such a manner as to constitute the
transferee the holder of the bill: s. 31(1), BEA.
Actual mode of negotiation (transfer) depends on
whether the bill is a bearer or order bill: s. 8(2), BEA.
60
Transfer of a billcontd.
A bearer bill is one that is expressed to be payable to

bearer or an order bill that has been endorsed in blank.
I. e, when:
(a) it is expressed to be so payable to bearer, e.g. Pay
bearer; or
(b) the only or last endorsement on an order bill is one
in blank, i.e. specifies no endorsee: s. 8(3) & s. 34(1); or
(c ) the payee is a fictitious or non-existing person: s.7(3).
Bearer bills are transferable by mere delivery, -actual or

constructive alone.
61
A bill is payable to order when(a) it is expressed to be so payable, e.g. Pay Nit Ndekle
or order ; or
(b) expressed to be payable to a particular person,
and does not contain words prohibiting transfer or
indicating an intention that it should not be
transferable, e.g. Pay Nit Ndekle: s. 8(4); or
(c) the bill originally endorsed in blank is converted to a
special endorsement, i.e. specifies the person to whom
or to whose order it is payable: s. 34(4).
62
An order bill is transferred in the following ways:
(a) by the endorsement of-
the payee, or;

the holder to whom it has been specially endorsed,
AND
(b) by delivery of it (the bill).
63
Endorsement
Endorsement, in commercial law, ordinarily means
signing the back of a document to transfer ownership
of the rights in that document to a specified payee.
It is defined in the BEA as an endorsement completed
by delivery: s.2.
To operate as a negotiation, an endorsement must,
among others, be written on the bill itself, and be an
endorsement of the entire bill: s. 32.
64
Thus, endorsement is the placing of a signature on the

back of a negotiable instrument in order to transfer or
guarantee it or to acknowledge payment.
The signature itself is also referred to as an
endorsement.
65
Delivery
In the English language, delivery means, among others,
the act of giving or transferring or the state of being
transferred or given.
In the BEA, it is defined as transfer of possession,
actual or constructive from one person to another: s. 2
Actual delivery is one which exists in reality
Constructive delivery is effected by mere intention,
e.g. where drawer completes a cheque and notifies
payee while holding it on payees behalf, the cheque is
deemed issued.
66
No person is liable on a bill unless he has(a) signed it; and

(b) delivered it.
Delivery is presumed in favour of a holder in due
course, but presumption may be rebutted in the case
of any other holder.
67
Test: A person taking an instrument bona fide, and for

value, known as a holder in due course, gets title even
though the title of the transferor may be defective.
A rough and ready test of negotiability in case of bearer
instruments is:
Can a good title be acquired through a thief? If

yes, the instrument is negotiable.
In other words, the principle of nemo dat quod
non habet does not apply to negotiable
instruments.
68
NB:
All negotiable instruments are transferable.
But not all transferable instruments are negotiable.
These basic rules of transfer apply generally to all bills,
including cheques and promissory notes, with
appropriate variations.
69
FORGED OR UNAUTHORIZED BILL
By s. 24, BEA, where a signature on a bill is forged or

placed thereon without the authority of the person
whose signature it purports to be, the forged or
unauthorised signature is wholly inoperative and no
rights can be acquired by reason of such signature.
The only exception is where the party against whom
enforcement is sought is estopped from denying the
genuineness of the signature.
Forgery is the making of a false document with intent
to defraud or to deceive: s. 345, Penal Code, Cap. 63.
70
Forged and unauthorised signatures contd.

Where there is intention that a signature should be
accepted as genuine and that somebody shall suffer
thereby, the same is forged, even if it bears no
resemblance to with the signature of the apparent
signatory.
The forgery may be that of a drawer, endorser or
acceptor.
E.g. F signs Vs name on a cheque or alters Vs
signature to that of another.
71

Unauthorised signature is(a) a signature made without the permission of the
person whom it is sought to hold liable; or
(b) a signature made in pursuance of a purpose
which is not approved by the person whom it is
sought to hold liable thereon.
Authority may be E.g. where a person, purporting to be an agent
of another (principal), signs his own name but without authority
to do so.
An unauthorised signature may be ratified by the

person by whose authority it purports to be made; but a
forgery, being a criminal offence, cannot be ratified.
72
The forgery of a drawers signature on a bill renders it

void; it is not an order addressed by on person to
another, signed by the person giving it: s. 3(1), BEA.
Where the acceptors signature is forged, he incurs no
liability, but all other persons whose signature are
genuine are liable to the holder.
Any forgery of the endorsement on an order bill
nullifies transfer since endorsement is vital for transfer
of an order bill.
73
Forged or unauthorized endorsement or signature is

deemed irregular, i.e., the cheque is not complete and
regular on its face.
In Kenya industrial Research and Development Institute v.
National Bank of Kenya Civil Case No. 225 of 1995, it
was held that a cheque on which a drawers signature is
forged is a mere paper and is not a cheque at all unless
it becomes valid by estoppel.
NB: The suggestion in that case that a forged cheque
could be also validated if adopted by the drawer
seems to go against the law on ratification of a forgery.
74
MATERIAL ALTERATION
By section 64, BEA, where a bill is materially altered
without the assent of all parties liable on it, the bill is
void except as against(a) a party who has himself made, authorized or
assented to the alteration, and
(b) subsequent endorser provided alteration is not
apparent, or
(c ) a holder in due course, where the alteration is
not apparent .
75
Material alteration contd.
What constitutes Material Alteration
Any alteration to an instrument is material if it in any

way alters the character or identity of the instrument; or
shakes the very foundation of the instrument; or
alters its operation; or
changes the rights and liabilities of the parties
thereto, whether the change be prejudicial or
beneficial.
76
Examples, s.64(2):
An alteration is material when a bill is altered as to or
with respect to- the date,
- the sum payable, in word or figures,
-the time of payment;
-the place of payment; and
- the addition of place of payment, without
acceptors consent, where the bill has been
accepted generally.
77
Other material alterations include:

-alteration of name of drawee: see Lumsden & Co v.
London Trustee Savings Bank (1971) 1 Lloyds Rep 114;
-crossing;
-change from order to bearer (but not vice versa);
and
-alteration to payees name.
78

Alterations on a cheque of the following will be deemed
to be material:
(a) Date;
(b) Amount;
(c) Name of payee;
(d) Any crossing;
(e) or order to bearer, unless drawer endorses.
79

Apparent and non-apparent alteration
It is stated, in s.64(1) proviso, that a holder in due
course may, notwithstanding a material alteration,
enforce payment of a bill according to its original tenor
where the alteration is not apparent.
No guidance is given on what is apparent alteration
but may be one which a reasonably careful scrutiny
would reveal: see Woolatt v. Stanley (1923).
A non-apparent alteration is a cleverly or skillfully made
one.
80
The following alterations will not vitiate an

instrument:
(i) An alteration, which, though made in a
material part,
was made before the
instrument was issued.
(ii) An alteration made for the purpose of
correcting a mistake, such as the correction of
mistake in respect of date on a bill e.g. from 2021
to 2014;
81

(iii) An alteration made to carry out the common
intention of the original parties, e.g., the
subsequent insertion of the words or order
where the drawer of a bill forgets to insert the
words.
(iv) An alteration made with the consent of the
parties.
(v) An alteration which is not material.
82
Alterations authorised by the BEA.

The following alterations, though material, are
permitted by the Act, and do not invalidate the
instrument:
(a) Filling blanks of an inchoate instrument;
(b) Conversion of a blank endorsement into a
special endorsement or endorsement in full;
(c) Crossing of cheques.
83
Effect of material alteration
An unauthorized alteration discharges all parties prior

to alteration, unless they agree to it.
A banker will not pay a cheque bearing material
alteration unless the alteration has been agreed to and
signed by the drawer
Where alteration is not apparent, a holder in due course
can enforce the cheque as if it was unaltered.
84

Penal provisions
By s. 356, Penal Code, any person who, with
intent to defraud
(a) obliterates, adds to or alters the crossing on a
cheque; or
(b) knowingly utters a crossed cheque, the

crossing on which has been obliterated, added
to or altered,
is guilty of a felony and is liable to imprisonment
for seven (7) years.
85
END OF PART ONE
Nairobi,
October, 2014.
86

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KENYA SCHOOL OF LAW

The law recognizes peoples rights in respect of real or

(b) Choses in Action

Negotiable instruments are a class of documents that

-To facilitate payments within any given territory,

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

The principal means or mode of realizing payments

Negotiable instruments contd.

Mercantile custom and usage still wields an important

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable instruments contd.

Negotiable instrument is not defined in any Kenyan

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Instrument originates from the Latin word

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

NEGOTIABLE INSTRUMENTS IN KENYA

The history of negotiable instruments in Kenya is

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable Instruments in Kenyacontd.

The main and well known commercial papers created by statute,

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable Instruments in Kenyacontd.

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable Instruments in Kenyacontd.

The above list is not exhaustive.

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable Instruments in Kenyacontd.

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Negotiable Instruments in Kenyacontd.

(iv) Delivery orders;

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

The principal sources of the law relating to negotiable

the Bills of Exchange Act, Chapter 27 (also referred

The genesis of the last two is well known to

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Sources of law contd.

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Sources of law contd.

NB: (1). BEA does not mention other negotiable

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Sources of law contd.

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Sources of law contd. Cheques Act

Sources of law contd.

Common law today is simply the body of law derived

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Sources of law contd.

Equity consisted originally in a body of rules and

In both U.K. and Kenya today all courts exercise

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Bills of exchange, as negotiable instruments, are still

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Bill of exchange contd.

The bill of exchange is thereafter presented by the seller

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

FORM OF BILL OF EXCHANGE 1

Date: 28th June, 2014

(or) my order] the sum of [Kenya shillings one hundred

BILL OF EXCHANGE: ESSENTIAL ELEMENTS

A bill of exchange is a written promise of payment

Negotiable Instruments in Kenya by RauttaAthiambo [2014]

Essential elements of a billcontd.

Essential elements of a billcontd.