190 THE ADVOCATE
VOL. 79 PART 2 MARCH 2021
2. the drawee (the bank on which it is drawn); and
3. the payee (the party to whom it is payable).
A bank draft is a similar instrument but has only two primary parties:
1. the bank (which is both drawer and drawee); and
2. the payee.
The payee (or subsequent holder) of a draft may treat it as either a
cheque or a promissory note.6
A certified cheque is a cheque that has been “accepted” by the drawee
bank and thus the bank has directly obligated itself to the payee, subject
only to limited exceptions.7 A draft and a certified cheque today are treated
in the same fashion. The bank transfers the amount of the item into a suspense
account until the item is presented for payment.
Upon delivery of an item to the payee, the payee becomes a “holder” of
the item. Generally a negotiable instrument can be endorsed by the payee
to an endorsee, who, upon receipt of the item in good faith and for value,
usually becomes a “holder in due course” of the item. A “holder in due
course” does not have an absolute right to payment, though it is often mistakenly
thought that this is so. To qualify as a “holder in due” course, the
person claiming must meet certain criteria set out in the BEA:
55. (1) A holder in due course is a holder who has taken a bill, complete
and regular on the face of it, under the following conditions, namely,
(a) that he became the holder of it before it was overdue and without
notice that it had been previously dishonoured, if such was the fact;
(b) that he took the bill in good faith and for value, and that at the
time the bill was negotiated to him he had no notice of any defect in
the title of the person who negotiated it.
(2) In particular, the title of a person who negotiates a bill is defective
within the meaning of this Act when he obtained the bill, or the acceptance
thereof, by fraud, duress or force and fear, or other unlawful means,
or for an illegal consideration, or when he negotiates it in breach of faith,
or under such circumstances as amount to a fraud.8
An item may be negotiated before it is due (such as a post-dated cheque)
even though it is not payable until its due date.9 The original payee as a
holder of the item is generally still subject to the equities arising from the
underlying transaction. An endorsee, as a “holder in due course”, usually is
not affected by the equities of the underlying transaction, subject to the criteria
in s. 55.
The advantages of negotiable instruments have been demonstrated by
their pervasive use for the past several centuries throughout the world in