The essential validity requirements of a negotiable instrument must be fulfilled cumulatively to make it negotiable. Absence of any one factor makes the whole instrument non-negotiable or invalid. However, there are certain ambiguities or omissions which do not affect the negotiability of the instruments. The commercial code provides rules for clearing up ambiguous terms. However, in some instances there are no specific provisions; hence any gap should be filled through interpretation.

Joint notes and bills

As a matter of principle, the code requires that the maker, drawer, drawee and payee of a commercial instrument be specified. All these persons except the payee should have contractual capacity to bind themselves by a commercial instrument (Art 733). The payee, as far as he does not transfer it to another person through endorsement, can validly be a minor or any other person lacking capacity. Capacity is required according to Art 733 to create an obligation, not to be a recipient of right or be a beneficiary. For example, a bill of exchange issued to a minor is a valid and negotiable instrument. This being the case, the code is silent as to the possibility of more than one maker, drawer, drawee or payee. To have an idea, let’s examine the following instruments:

I promise to pay X and Y or order Br 500.

To Almaz and Abera: Pay X or order Birr 500 2 months after Date. Commercial Bank of Ethiopia.

To Harar Bank: Pay X or order Birr 500. Signed by Hana and Getachew.

In the first case, the promissory note is issued jointly in favor of X and Y. Abera and Almaz are jointly ordered to pay by the drawer in the second example; hence they are joint drawees. In the last example, a cheque was issued by joint drawers, Hana and Getachew. In the absence of any provisions in the commercial code governing such cases, one has to look for an answer in the general rules of contract. Art 1896 of the civil code states that co-debtors have joint and several liability. Therefore, the joint drawee in the second example and the joint drawers in the third example will assume joint and several liability, and the instruments are valid and negotiable. In the first example, the promissory note is issued in favor of X and Y, making them joint creditors according to Art 1910 of the civil code. Joint creditors are not entitled to claim payment jointly and severally. Each joint creditor may require the maker or drawer of the instrument to pay him half of the total amount (Art 1911 (2) civil code).

Date

The date when the instrument was made is one of the negotiability requirements in Articles 735(9), 823(f) and 826(d). The code does not make any exception to undated instruments. The date of an instrument is necessary to determine a definite time for payment and to calculate interest, if there is any specification of interest rate. If the instrument is a demand instrument, the date may not be necessary to determine the time of payment. But even in demand instruments, the date is necessary to determine whether it is overdue or not. An instrument becomes overdue if it is presented for payment after the expiry of the period of time provided by law for its presentment. A bill of exchange or a promissory note payable at sight should be presented within a year of its date (Articles 770 and 825 (1) (b)). Similarly, a cheque should be presented within six months of its date. Unless the instrument contains a date, it will be impossible to determine whether the payee or the holder has presented it within one year or six months.

Therefore, the conclusion we should reach concerning Ethiopian law is that an undated commercial instrument is not negotiable. According to Indian law, a negotiable instrument without a date is not necessarily invalid. If the legal requirements for the validity of an instrument are fulfilled, the instrument is valid and the date of execution can be proved by oral or other evidence. The holder in due course or the payee can insert the true date on the instrument, and such insertion is not considered to be a material alteration. According to the uniform commercial code (UCC), unless the date of the instrument is necessary to determine a definite time for payment, the fact that an instrument is undated does not affect its negotiability.

The stringent rule of the commercial code regarding dates is also relaxed in some exceptional circumstances. An undated bill of exchange, promissory note, or cheque at the time of issuance becomes valid or negotiable if a date agreed by the maker or drawer to be filled in is inserted by the payee or subsequent holder (Arts 744, 825(2), 841). For example, on January 1, 2006, Ato Abera issues an undated cheque to Almaz or order. Abera has clearly informed Almaz that she should write the date on the cheque as January 26, 2006. Almaz, by inserting this agreed date, can make the otherwise non-negotiable cheque negotiable.

In the absence of any clear instruction by Abera as to the date, Almaz should write the true date of issuance of the instrument (i.e., January 1, 2006). The silence of the drawer constitutes an implied agreement that the true date of issuance will be inserted. Sometimes, for different reasons, the payee or holder may write a date contrary to the one expressly agreed to by the maker or drawer. For instance, Almaz may write the date as February 19, 2006. In this case, Article 744, 825(2) and 841 tell us that this fact may be raised as a defense against the one who wrote contrary to the agreement. The defense is not to make the instrument invalid but should be limited to issues attached to the date of payment. Hence, insertion of a date contrary to the agreement may be raised by Abera against Almaz if there is any dispute regarding time of payment, time of presentment, or calculation of interest. The defense could be raised only against the person who wrote the instrument and any subsequent holder who acquires it in bad faith. It could not be raised against a holder in due course who acquires it in good faith and without knowledge.

Postdating or antedating

A postdated instrument is one that bears a date after the date of its issue and is payable on or after the stated date. For example, on Meskerem 6, 1996, Ato Hussein issues a cheque dated Hidar 27, 1996. This instrument is a postdated cheque. It will be payable to the payee or holder on Hidar 27, 1996, or anytime after that up to the following six months. An antedated instrument is one that bears a date before the date of its issue and is payable after the stated date. In the example given above, if Ato Hussein on Meskerem 6, 1996, issues a cheque dated Hamle 19, 1995, the cheque will be payable on Meskerem 6, 1996 (the date of issuance, because it is a demand instrument), or any time after. For the purpose of calculating the period of time for presentment, the time runs from Hamle 19, 1995, not from Meskerem 6, 1996.

Generally, postdating or antedating an instrument does not affect its negotiability. The code limits the applicability of this rule only to a bill of exchange (Art 745) without providing similar provisions for promissory notes and cheques. No justifying ground can be given as to why the law fails to provide the effect of postdating and antedating in case of cheques and promissory notes. This gap should merely be considered as a drafting mistake which should be filled by the legislature through amendment.

Place of payment

Like the time of payment, indication on the instrument as to the place of payment is necessary to determine discharge of obligation by the drawee or maker and also to determine whether there is proper presentment. Articles 735(e) and (g), 823(d) and (f), and Art 827(c) and (d) all require that a bill, a note, or a cheque should indicate the place of payment and place of issuance. In the absence of any clear indication, the law provides a presumption. A bill of exchange which does not indicate its place of payment shall be deemed to be payable at the place mentioned beside the name of the drawee, and such place shall be considered the domicile of the drawee (Art 736 (b)). The same rule applies to a bill which does not mention the place of its issuance; it shall be deemed to be drawn in the place mentioned beside the name of the drawer (736(c)).

For a promissory note, the law makes the place where the instrument is made both the place of payment and the place of domicile of the maker (Art 824(b)). With regard to a cheque, the place mentioned under the name of the drawee is considered the place of payment. Since the drawee is always a banker, it means the branch indicated under the name of the principal bank is the place of payment. Sometimes several branches may be mentioned; in this case, the cheque shall be payable at the first place mentioned (Art 828 (a)). Art 828(b) regards the place of principal establishment of the drawee as the place of payment in the absence of any place mentioned under the name of the drawee.

Neither Art 736 nor Art 824 gives a hint as to the place of payment if there is no place mentioned besides the name of the drawee or the maker. According to the UCC, when no place of payment is indicated, it is payable at the address of the drawee or maker stated in the instrument. If no address is stated, it is payable at their place of business or, failing that, their residence. It is recommended that the same position be taken under the commercial code to preserve negotiability. This is supported by Art 1755(2) of the civil code, which states that in the absence of an agreed place, payment shall be effected at the place where the debtor had his normal residence at the time the contract was made.

Discrepancy in the sum payable

A negotiable instrument is not considered non-negotiable by the mere fact that there is a difference between the sum stated in figures and words. If the amount is stated differently in figures and words, the amount stated in words shall be the amount undertaken or ordered to be paid (Articles 740(1), 825(2), 837(1)). For example, if a promissory note reads "Br 500 (five thousand Birr)," the amount payable is five thousand Birr. Repetition of the sum payable also does not render the instrument non-negotiable. If the sum is stated more than once in words or more than once in figures and there is a discrepancy, the smaller sum shall prevail (Articles 740(2), 825(2), 837(2)).

A discrepancy may also be created between typewritten, printed, or handwritten words. The commercial code does not provide express provisions for such cases, but according to the UCC, typewritten words prevail over printed forms, and handwritten words prevail over both. This approach should be adopted to give effect to the true intention of the drawer. However, this approach carries the risk of inviting unauthorized handwritten alterations to printed or typewritten terms.

Interest

The code allows specification of interest on a bill of exchange or a promissory note (Art 739 and 825(2)). The Amharic version of Art 836 expressly excludes stipulation of interest on a cheque. Even for bills and notes, interest is only effective if they are payable at sight or a fixed period after sight. A provision of interest on bills and notes payable at a fixed period or fixed period after date is not valid (Art 739(1), 825(1)). Interest will only be calculated when the rate is specifically mentioned.

Interest will not be calculated on a bill or note written merely "with interest" or "with legal interest." This rule differs from the Indian law and the UCC, which provide that when a rate is not specified, the legal interest rate applies. It also deviates from the general contract provisions in the civil code (Articles 1751 and 2478), which state that interest shall be paid at the legal rate of nine percent per annum if the parties agreed to interest but did not specify the rate.