Law Relating to Banking in Hong Kong

2.Negotiable Instruments

Chapter฀2฀ Negotiable฀Instruments฀ 2.1฀Th e฀Natur e฀o f฀Negotiabl e฀Instrument s฀ 2.1.1 The meaning of 'instrument' Th e word 'instrument' has a technical meaning in this part of the law. It means a document with a special purpose: to show who owns money and how that money is intended to be transferred. Moreover , it must be distinguished from a deed, which is a document under seal. What makes an instrument work is one or more signatures on it. In the technical words of the law it is 'an instrument under hand which is a document of title to money'. 'Under hand' i s legal jargon for signed but not sealed 'unde r seal'. The purpose of such an instrument is not only to show who owns money bu t t o mak e tha t mone y transferable , wit h whateve r restrictions the signer intends. The intention may be that the transfer can be effected merel y by handing the document to someone els e — 'b y delivery ' a s i t i s called . Th e instrumen t i s the n calle d a 'bearer' document. Or the intention may be that the document shall be transferred only when that delivery is accompanied by a signature of the person transferring it. It is then called an 'order' document . 2.1.2 The meaning of 'negotiable' I n ordinar y language , 'negotiable ' may mean just the same as 'transferable' bu t in the phrase 'negoti able instrument' i t has a narrower special meaning. A document is a negotiable instrument only if a person to whom the document is properly transferred gets the right to the money value the document represents, even if th e person wh o transferred i t could have bee n refused payment on it. The rules which govern negotiable instruments have been taken into the common la w fro m th e usages o f merchants an d bankers. Only thos e instrument s whic h b y suc h usag e hav e acquire d tha t distinctive nature are treated by the law as negotiable instruments. 2.1.3 Types of negotiable instrument Al l negotiable instruments are either promises o r orders to pay money. If you look at a bank not e 9 10฀Law ฀Relating฀to฀Banking฀in฀Hong฀Kong฀ you wil l se e tha t i t say s 'Th e Hongkon g an d Shangha i Bankin g Corporation [or Standard Chartered Bank] promises to pay the bearer on deman d a t it s offic e her e Te n Dollars' . Ther e ar e onl y tw o parties, the bank — the promisor who promises — and the bearer, who can claim the money value . But if you look at a cheque you will see that there are three parties, the drawer (who has an account with the bank), the bank (the drawee on whom the cheque is drawn) and the payee (who is to get the money). The negotiable instruments which are promises—those with only two parties — include promissory notes, bank notes, treasury bills, share warrants, bearer debentures, bearer bonds, bearer scrip certificates and negotiable certificates of deposit. Negotiable instruments which are orders — those with three parties — include bills of exchange , cheques, bank drafts, travellers' cheques, dividend warrants and interest warrants. The only kinds of negotiable instruments which are dealt with in detail in this book are bills of exchange (including cheques) and promissory notes, though others will be mentioned. The law which governs bills of exchange (including cheques ) and promissory notes has been codified for well over a century and most of its rules are well settled and exemplified b y the cases that have bee n decide d sinc e i n Hon g Kon g an d Englan d an d othe r jurisdictions whose law is similar to ours. In Hong Kong the search for the relevant law always starts with the Bills of Exchange Ordinance , from now on abbreviated to BEO. 2.2฀Bill s฀of฀Exchang e฀ 2.2.1 Definition and characteristics Th e definition of a bill of exchange appears in BEO s3(l): (a) A bill of exchange is an unconditional order in writing , addresse d b y on e perso n t o another , signe d b y the person giving it, requiring the person to whom it is addressed to pay on demand or...