International Settlement

Author: Zhang Anping (Editor)
Publisher:
Publish Date: 2004-06-01
Features:
(10) Place of Issuance
The People's Republic of China Negotiable Instruments Law stipulates that if the place of issuance is recorded on a draft, it must be clear and definite. If the place of issuance is not recorded, the place of business, residence, or habitual residence of the drawer shall be deemed the place of payment. The place of issuance is not a mandatory item.
The Geneva Uniform Acts stipulate that the place of issuance is a mandatory item, usually taken as the place of payment based on the address of the drawer of the draft. The United Kingdom Negotiable Instruments Law stipulates that the place of issuance is not a mandatory item.
III. Other Items of a Draft
(1) "Pay the First, Not the Second" and "Pay the Second, Not the First"
Drafts are generally issued in duplicate. After the payee pays one draft, the other automatically becomes void. This type of draft is marked as "Pay the First, Not the Second" on the first draft and "Pay the Second, Not the First" on the second. The methods of indication include:
Second (First) unpaid
Second (First) of the same tenor and date unpaid
(2) Designated Payer
For convenience, the drawer may record the payee on the draft and specify that payment will be executed by a third party, who is then known as the designated payer. If the draft does not originally contain a designated payer, the payee may add one when accepting it.
(3) Referee in Case of Need
A referee in case of need, also known as a referee for emergencies, refers to a third party recorded on the draft at the place of payment, who participates in payment or acceptance when the draft is dishonored or refused acceptance.
(4) Other Items
These include: not transferable, without notice of dishonor, without protest, without recourse, and draft number.
Section III: Parties to a Draft and Negotiable Instrument Acts
I. Parties to a Draft
A draft has three basic parties: the drawer, the drawee, and the payee. In the circulation of negotiable instruments, additional parties such as endorsers and acceptors arise. Based on their rights and responsibilities, parties can be classified as creditors or debtors.
The debtor under a draft refers to the party that bears the payment obligation under the draft, including the drawer, drawee, endorser, and acceptor.
The creditor under a draft refers to the party entitled to exercise draft rights against the debtor, including the payee and holder.
(1) Drawer
The drawer is the person who issues and delivers the draft. Before acceptance, the drawer is the primary debtor; after acceptance, the drawer becomes a secondary debtor, and the acceptor becomes the primary debtor. Once a draft is issued, the drawer is liable to guarantee payment and acceptance. If the draft is dishonored, as long as the holder has taken necessary legal procedures against the dishonor, the drawer must repay the amount to the holder upon being sued. If the drawer wishes to avoid being sued by the holder, it may add a note stating "without recourse." However, this affects the negotiability of the draft and is generally not accepted by the payee.
(2) Drawee
The drawee, also known as the payee-in-law, is the person who accepts the draft and pays the amount. Before acceptance, the drawee does not sign on the draft and thus bears no legal liability, making it a secondary debtor. After acceptance, the drawee signs on the draft and becomes the primary debtor with legal liability.
(3) Payee
The payee, also known as the beneficiary, is the person who receives the draft and is the primary creditor. The payee has the right to demand payment from the drawee and, if refused, to recourse against the drawer.
(4) Endorser
An endorser is a party who signs on the back of the draft and delivers it to another person. The person receiving the draft is known as the endorsee. The payee can become an endorser through endorsement and can transfer the right to negotiate the draft continuously. The endorser then becomes the prior party to the endorsee and subsequent transferees, while the endorsee becomes the subsequent party to the endorser and earlier transferees. Among these endorsers, the payee is the primary endorser. The endorser guarantees payment or acceptance to the drawee and must repay the amount to the subsequent party if the draft is dishonored, then pursue recourse against the prior party until the drawer.
(5) Acceptor
When the drawee agrees to accept the drawer's order and signs on the front of the draft, it becomes the acceptor. After acceptance, the drawer becomes a secondary debtor, and the acceptor must guarantee payment of the accepted terms and cannot refuse payment to a good faith holder under the following excuses:
(1) The drawer does not exist.
(2) The drawer's signature is forged.
(3) The drawer lacks the capacity or authority to sign the instrument.
(6) Holder
A holder refers to the party holding the draft. The holder is the subject of negotiable instrument rights and enjoys the following rights:
(1) Right of Payment Demand
The holder has the right to present the draft to the drawee or acceptor and demand payment.
(2) Right of Recourse
The holder has the right to demand payment from the prior party up to the drawer if acceptance or payment is not obtained.
(3) Right of Negotiation
The holder has the right to transfer the draft legally.
(7) Holder for Value
A holder for value refers to a holder who acquires the draft by paying a certain consideration. Consideration refers to something that supports a simple transaction or contract, such as goods, services, or money. Once consideration is paid for the draft, the holder of value and all subsequent parties become holders for value, even if subsequent parties have not paid consideration (e.g., through a gift). The rights of a holder for value cannot exceed those of the prior party, meaning they are still subject to the same defects in title as the transferor.
(8) Holder in Due Course
A holder in due course, also known as a bonafide holder, is a holder who acquires a complete, regular, and unexpired draft for value in good faith without knowledge of any prior dishonor or defect in the title of the transferor. To qualify as a holder in due course, all the following conditions must be met:
(1) Completeness and Regularity of the Bill
(2) Not Overdue
(3) Without Notice of Previous Dishonor
(4) Good Faith
(5) For Value
(6) Without Notice of Any Defective Title of the Transferor