Negotiation of a Bill of Exchange

                                           Case Problem

    Tom purchased a used PC from John for 500 euro (100 euro Cash, 400 in the form of a promissory
note due in 3 months). Fearing that Tom would discover that he computer was defective, John
transferred the note to Sylvia. She attempted unsuccesfully to collect from Tom, who by then had
discovered that the PC was worthless. Sylvia has sued Tom. Will Sylvia prevail as to the entire
amout of the note? Explain…

                     Intention of drafters of the Uniform Bill of Exchange Act



•           Simple process of negotiation

•           Series of contracts

•           Chain creating

•           Transferee status - protected



                                Transfer of a negotiable instrument

•            „Nonnegotiable paper“

•       May be assigned

•            Bearer paper

•       Paper payable to the person who has physical possession of it

•       Holder on delivery

•            Order paper

•       Paper payable to the order of a named payee

•       Delivery + Indorsement (in writing)

                                    „Nonnegotiable“ instrument

•             drawer may exclude endorsement by the so-called restrictive clause („Rektaklausel“)
and the bill is then transferable by assignment

•             the law demonstratively states the wording: “not to order”

•             in practice, we usually find it under the designation of the creditor in bill (“Pay
not to order to Mr. Jan Černy”)

•             transfer is then possible only in the form and with the effects of assignment (Civil
Code)

•             for the contract of assignment to be valid a written form is required by the law

•             Effects: the acquirer acquires the right only derivatively from the previous
possessor and is exposed to all objections lodged by the debtor against the endorser (PERSONAL
DEFENSES)





                                       Indorsement of a Bill

                                Bill of exchange

      In Prague, January 1, 2005

      For this bill of exchange pay to the order of Franck Payee the sum of One hundred 100 USD.

      Drawee:

      Karel Nowak

      Brno, Úvoz 1

      602 00

      At: Brno,Úvoz 1, 602 00

                                                                 accepted Karel Nowak
                                                                          Signature of the drawer

                                                        Jan Pleva

                          Indorsement –  Participants, Form and Location

    For me to order of Paul Newman                      Franck Payee

                   signature





    For me to order of  Franck Black                                        Paul Newman

                        signature

                                         Blankindorsement

Endorser can „turn“ order paper into bearer paper:





„Pay …….

     (s) Kim Gordon“





                                      Effects of indorsements

•            Transferring (Sec. 14 I)



•            Legitimizing (Sec. 16)



•            Guaranteeing (Sec. 15)



                                       Types of Indorsement

Non-binding - Art. I, Sec. 15, par. 1

       “sine obligo”, “without binding effect”, “without guarantee”, “without recourse”



Direct (transfer prohibition) - Art. I, Sec. 15,par. 2 BECA

       “not to order”



Mandating - Art. I, Sec. 18 BECA

       “value in collection”, “for collection”, “by procreation”



Securing - Art. I, Sec. 19 BECA

       “to securing”, “value for securing”, “value in pledge”



Sub-endorsement- Art. I, Sec. 20 BECA