A negotiable instrument is a document in writing that represents an unconditional or unrestricted promise to pay a certain amount of money, specified on it, upon the demand of its owner.

The rapidness of commercial transaction which demanded flexibility in business paid way for the introduction of alternative means of money transactions. Moreover, traders would often prefer future payments than immediate payment where he can avail the benefit of a well thought out structure of payments at a previously determined date.

The main advantage of the negotiable instruments is that it can be transferred from one person to another, through procedures which are easy and swift. These modes of transaction would reduce the use of money and thus minimizes the amount of money circulated in the market. Moreover, unlike ordinary contract documents the formal requirements of a contract like offer, acceptance or consideration are not generally applicable to negotiable instruments. Therefore, the right of the owner to demand payment is not subject to set-off or counter claim, and is not based on the validity of the underlying contract giving rise to the debt. Moreover, these do not impose any obligation or responsibility on the part of the owner or a condition, in order to claim the amount specified on it.

Cheques or promissory notes are often referred as “commercial papers or bills of exchange” because of its flexibility to use it on a future date. A bill of exchange is a written order by the drawer to the “drawee” (a person ordered in a document to make payment) to pay money to the payee. The major difference between the check and the bill of exchange is that the cheque is payable upon reading it while the bill of exchange is payable at a certain point in time in the future. The check will become payable upon reading it while the payment consideration in the bill of exchange is postponed till the maturity date. Moreover, punishment is prescribed for issuing a cheque without balance but there is no punishment for issuing a bill of exchange without a payment consideration because bill of exchange is often used as a mode of credit while the cheque would always be treated as a mode of payment.

Though Kuwaiti law does not provide any clear definition for ‘cheque’ the Jurisprudence (Fiqh) defines it as “a written order or a note for a particular purpose by means of which a person order the ‘drawee’ to make payment (in most cases the ‘drawee’ would be one of the banks itself’ and the Kuwaiti law specifies that the drawee shall be a bank). The right of execution of a cheque is linked to the possession of the document itself i.e., a person can write “pay to the order of” on the back of a check and turn it over to someone else. By handing over a cheque he is actually guarantying payment. The intention of the party at the time of delivery of the cheque, is not a valid defense and the liability shall ensue from the date of delivery of the cheque. The responsibility of the “Drawer” (a person who signs or is identified in a cheque as a person ordering payment) shall be released from his liability only when the beneficiary receives payment. The validity period of a cheque or promissory note shall as per the prevailing system of a country and Kuwaiti law does not prescribe any time limitation and therefore the cheque would be treated as valid indefinitely for an undetermined period. Post dated cheques would often serve the purpose of a promissory note, in Kuwait.

Promissory note is a document through which the borrower promises the lender that he will pay back the money according to the terms mentioned therein or in other words it is a written promise to pay a certain sum of money, at a future time, unconditionally. But it is not a mere acknowledgement of the debt. A promissory note payable to order or bearer becomes authenticated by endorsement, and the holder may bring suit on it in his own name. Although a simple contract, a sufficient consideration is implied from the nature of this instrument.

Most of the rules applicable to bills of exchange affect promissory notes, as well. Per Kuwaiti law a particular form is required for these instruments. The Commercial law of Kuwait prescribes some prerequisite for the Promissory note and therefore the deed shall not be treated as promissory note if it does not comply with those provisions. There are two vital criteria which determines the validity of a note; first, that it be not payable at all events, not dependent on any contingency or payable out of any particular fund. And, secondly, it is mandatory that it should be used for the payment of money only.

An example for another widely used negotiable instrument is the bill of lading. A bill of lading does not carry the name of the parties but only the carrier’s name. A contract in a bill of lading can be transferred to the consignee, when he receives the document. An implied contract can also be established between the carrier and the consignee when the later claims the goods at the destination. Contracts can also be established between the carrier and consignee through an “agency clause “or “third party” clause.

Punishment for dishonor of cheques

Article 523 of the Kuwaiti law states that, the drawee shall bear the detriment resulting from the payment of a cheque in which the signature of the ‘Payee’ is forged, or if the data on it is misrepresented, provided the fault cannot be attributed to the drawer. The drawer shall be considered, particularly, at fault, if he does not exert due and diligent care in safekeeping the cheque book, which is handed over to him from the bank. The Decree of Law no. 15 for the year 1978 (which supersedes Article 237 of Kuwaiti Penal Code) stipulates punishment of imprisonment, for a period not exceeding five years and with a fine not exceeding five hundred dinars or each of either punishment, for a person who, with bad intention, commits any of the following acts:

  • if he issues a check that has no current and cashable payment consideration.
  • If he withdraws from his account, after issuing the check, all or some of the money in the account, in such a way that the remaining amount is not sufficient for the value thereof.
  • If the drawer gives instructions to the drawee not to cash the check.
  • If he intentionally prepares the check or signs it in such a way that prevents the check from being cashed.

Though cheque resembles other commercial papers like bills of exchange, or promissory notes, it is unparallel to other negotiable instruments because it effectively meets all the objectives of money transaction. Due to the reason that check plays a predominant role in the economic system of a country Kuwait has developed a well thought out system of law to counter any related crime.