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19 Bills of Exchange

Unless otherwise indicated, all section references in this chapter are to

the Bills of Exchange Act 1882.

19.1 Negotiability
(a) Negotiable instruments
Where a thing in action is assigned, the assignee takes subject to the
equities and any other defects in the title of the assignor. The assignee
must also make sure that prompt notice of the assignment is given to the
debtor in order to preserve his rights as assignee. The assignee's great
disadvantage is that he can never be absolutely certain that he will get a
perfect title transferred to him. Where, on the other hand, there is a
transfer of a negotiable instrument the position of the transferee is quite
different from that of the assignee. Negotiable instruments have been
invested by custom or by statute with the special characteristics of
negotiability. These characteristics are:
(i) the instrument can be put into a state in which title will pass by
mere delivery or, in the case of a bill of exchange, by indorsement
and delivery.
(ii) title passes on negotiation free from the equities and other defects.
(iii) the holder of the instrument can sue all prior parties in his own
name. (It must be remembered that a negotiable instrument may
be used to finance a series of transactions and may be thus
negotiated several times in its life.)
The commercial advantages of negotiation over assignment are ob-
vious.
Examples of negotiable instruments are promissory notes, dividend
warrants, debentures payable to bearer, share warrants, Treasury Bills
and bills of exchange, including cheques.
Examples of instruments which are not negotiable are bills of lading,
postal orders, share certificates and insurance policies.
The question whether or not any particular kind of instrument is
negotiable depended originally on mercantile usage.

(b) Use of bills of exchange

Negotiability means that an honest transferee for value can depend upon
being paid under the instrument. This facilitates the use of bills of
W. T. Major, Basic English Law
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exchange as instruments of credit for various commercial purposes, but

particularly:
(i) to raise short-term finance for trade and industry; or
(ii) to enable a seller or exporter to obtain cash soon after the dispatch
of the goods and, at the same time,
(iii) to enable the buyer or importer to defer payment, at least until he
is in possession of the goods.
For all the above purposes, the parties to a bill of exchange usually rely
on the services of an accepting house which is prepared to make itself
ultimately liable on the bill. An accepting house is a merchant banking
house specialising in the acceptance of bills of exchange. Acceptance is
carried out under previous arrangements called 'credits' set up in favour
of the banker's customers.
An ordinary cheque is a bill of exchange, but its usual purpose is
simply to enable the customer to draw on a banker for the provision of
cash to the customer himself or a creditor whereas, in the case of a
commercial bill, there will be a series of transactions, in each of which
the bill will be given in return for value.

(c) The Bills of Exchange Act 1882

The Act is a codification of the law of bills of exchange, cheques and
promissory notes. Important amendments to the law governing cheques
were made by the Cheques Act 1957.

19.2 Definition and Form of a Bill

( a) Definition
A bill of exchange is an unconditional order in writing, addressed by one
person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to or to the order of a specified
person, or to bearer: s.3(1).
An instrument which does not comply with these conditions, or which
orders any act to be done in addition to the payment of money, is not a
bill of exchange: s.3(2).
An order to payout of a particular fund is not unconditional within the
meaning of this section; but an unqualified order to pay, coupled with
(a) an indication of a particular fund out of which the drawee is to
reimburse himself or a particular account to be debited with the amount,
or (b) a statement of the transaction which gives rise to the bill, is
unconditional: s.3(3).
A bill is not invalid by reason that it is not dated, or that it does not
specify the value given, or that any value has been given for it, or that it
does not specify the place where it is drawn or the place where it is
payable: s.3(4).