Template:M intro repack negotiable instrument: Difference between revisions

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(Created page with "===Bills of exchange and cheques=== A bill of exchange is a primordial means of extending credit, whose antecedents one would do well to understand, as quite a lot of contemporary business of extending credit depends on them. This stuff is not immediately intuitive, but when you get in to it, it has a logic of its own, and is rather fun. We recommend it. Bills of exchange are governed by the elderly, but still in force, Bills of Exchange Act 1882, and ar...")
 
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*A transaction between [[drawer]] and [[payee]] whereby drawer issues a bill to drawee in (conditional) discharge of the consideration required for the payee’s goods or services.
*A transaction between [[drawer]] and [[payee]] whereby drawer issues a bill to drawee in (conditional) discharge of the consideration required for the payee’s goods or services.
*A payment obligation from drawee to payer which, if the drawee dishonours, triggers reinstatement of the drawer’s primary obligation to pay payee under the original transaction;
*A payment obligation from drawee to payer which, if the drawee dishonours, triggers reinstatement of the drawer’s primary obligation to pay payee under the original transaction;
*A reimbursement obligation (or debit entitlement) from drawer to drawee whereby drawee may deduct the amount drawn from drawer’s account with drawee upon draweer settling drawer’s original payment obligation to payee. And this is before we even get to negotiation.
*A reimbursement obligation (or debit entitlement) from drawer to drawee whereby drawee may deduct the amount drawn from drawer’s account with drawee upon drawer2 settling drawer’s original payment obligation to payee. And this is before we even get to negotiation.


Derivatives fans may see this as redolent of a [[equity give-up|give-up]].
Derivatives fans may see this as redolent of a [[equity give-up|give-up]].


===Promissory notes and IOUs===
===Promissory notes and IOUs===
A [[promissory note]] is just a special case of a [[bill of exchange]] where the drawer and the drawee are the same person, and the drawer thus draws the bill on itself — saying, effectively, “I direct myself to pay you this sum, only later”. It is an [[IOU]], effectively. The implication that it will be paid not now, but later — if it could be honoured right now it would have no point: you would just pay cash — it has the general quality of a ''credit arrangement''. Where the credit arrangement is in return for not goods and services but ''cash'', a [[promissory note]] is a form of ''[[loan]]''.


===History: Lord Mansfield and all that===
At a high level, debt securities closely resemble promissory notes. They are a form of securitised [[loan]].
Historian Jane Samson<ref>[https://sites.ualberta.ca/~janes/cv.htm Jane Samson at University of Alberta]</ref> wrote an excellent article in the Dalhousie Law Journal in 1988, from which some of this history is taken.<ref>[https://digitalcommons.schulichlaw.dal.ca/cgi/viewcontent.cgi?article=1518 Jane D. Samson, ''Lord Mansfield and Negotiable Instruments'' (1988) 11:3 Dal LJ 931]</ref>
In {{cite|Heylyn|Adamson}} Lord Mansfield drew a distinction betweem “inland [[bill of exchange|bills of exchange]]” where the drawee is to pay, and  “[[Promissory note|notes of hand]]” (now called [[promissory note|promissory notes]]) where the drawer is to pay (that is, drawer and drawee are the same person.
 
''Addressed'' promissory notes — those not made out to bearer — are bilateral arrangements, until they are negotiated to a third party, at which point they look exactly like bills of exchange — the act of “negotiating” and “drawing” being economically equivalent.
 
===“[[Bill of exchange]]”===
 
 


====Negotiability====
====Negotiability====
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You might think there is some scope for fraud here, and you might be right. There are many provisions on the Bills of Exchange act about that.
You might think there is some scope for fraud here, and you might be right. There are many provisions on the Bills of Exchange act about that.


===“[[Promissory note]]”===
 
A bill where the drawer and the drawee are the same person — that says, effectively, “I direct myself to pay you this sum, only later” — is a [[promissory note]]. An [[IOU]], effectively. Debt securities generally have this character. They are a form of securitised [[loan]].
===History: Lord Mansfield and all that===
Historian Jane Samson<ref>[https://sites.ualberta.ca/~janes/cv.htm Jane Samson at University of Alberta]</ref> wrote an excellent article in the Dalhousie Law Journal in 1988, from which some of this history is taken.<ref>[https://digitalcommons.schulichlaw.dal.ca/cgi/viewcontent.cgi?article=1518 Jane D. Samson, ''Lord Mansfield and Negotiable Instruments'' (1988) 11:3 Dal LJ 931]</ref>
In {{cite|Heylyn|Adamson}} Lord Mansfield drew a distinction betweem “inland [[bill of exchange|bills of exchange]]” where the drawee is to pay, and  “[[Promissory note|notes of hand]]” (now called [[promissory note|promissory notes]]) where the drawer is to pay (that is, drawer and drawee are the same person.
 
''Addressed'' promissory notes — those not made out to bearer — are bilateral arrangements, until they are negotiated to a third party, at which point they look exactly like bills of exchange — the act of “negotiating” and “drawing” being economically equivalent.
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