Bill of Exchange

BILL OF EXCHANGE
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a form of negotiable instrument, defined below, the history of which, though
somewhat obscure, was ably summed up by Lord Chief Justice Cockburn in his judgment
in Goodwinn v. Robarts (1875), L.R. 10 Ex. pp. 346-358. Bills of exchange were
probably invented by Florentine Jews. They were well known in England in the middle
ages, though there is no reported decision on a bill of exchange before the year
1603. At first their use seems to have been confined to foreign bills between
English and foreign merchants. It was afterwards extended to domestic bills between
traders, and finally to bills of all persons, whether traders or not. But for some
time after they had come into general employment, bills were always alleged in
legal proceedings to be drawn secundum usum et consuetudinem mercatorum. The
foundations of modern English law were laid by Lord Mansfield with the aid of
juries of London merchants. No better tribunal of commerce could have been devised.
Subsequent judicial decisions have developed and systematized the principles thus
laid down. Promissory notes are of more modern origin than bills of exchange, and
their validity as negotiable instruments was doubtful until it was confirmed by a
statute of Anne (1704). Cheques are the creation of the modern system of banking.
Before 1882 the English law was to be found in 17 statutes dealing with isolated
points, and about 2600 cases scattered over some 300 volumes of reports. The Bills
of Exchange Act 1882 codifies for the United Kingdom the law relating to bills of
exchange, promissory notes and cheques. One peculiar Scottish rule is preserved,
but in other respects uniform rules are laid down for England, Scotland and
Ireland. After glancing briefly at the history of these instruments, it will
probably be convenient to discuss the subject in the order followed by the act,
namely, first, to treat of a bill of exchange, which is the original and typical
negotiable instrument, and then to refer to the special provisions which apply to
promissory notes and cheques. Two salient characteristics distinguish negotiable
instruments from other engagements to pay money. In the first place, the assignee
of a negotiable instrument, to whom it is transferred by indorsement or delivery
according to its tenor, can sue thereon in his own name; and, secondly, he holds it
by an independent title. If he takes it in good faith and for value, he takes it
free from “all equities,” that is to say, all defects of title or grounds of
defence which may have attached to it in the hands of any previous party. These
characteristic privileges were conferred by the law merchant, which is part of the
common law, and are now confirmed by statute.
Definition.—By § 3 of the act a bill of exchange is defined to be “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.”[1] The person who gives the order is called the drawer. The
person thereby required to pay is called the drawee. If he assents to the order, he
is then called the acceptor. An acceptance must be in writing and must be signed by
the drawee. The mere signature of the drawee is sufficient (§17). The person to
whom the money is payable is called the payee. The person to whom a bill is
transferred by indorsement is called the indorsee. The generic term “holder”
includes any person in possession of a bill who holds it either as payee, indorsee
or bearer. A bill which in its origin is payable to order becomes payable to bearer
if it is indorsed in blank. If the payee is a fictitious person the bill may be
treated as payable to bearer (§7).
The following is a specimen of an ordinary form of a bill of exchange:—
London, 1st January 1901.
£100
Three months after date pay to the order of Mr J. Jones the sum of one hundred
pounds for value received.
Brown & Co.
To Messrs. Smith & Sons, Liverpool.
The scope of the definition given above may be realized by comparing it with the
definition given by Sir John Comyns’ Digest in the early part of the 18th century:
—“A bill of exchange is when a man takes money in one country or city upon
exchange, and draws a bill whereby he directs another person in another country or
city to pay so much to A, or order, for value received of B, and subscribes it.”
Comyns’ definition illustrates the original theory of a bill of exchange. A bill in
its origin was a device to avoid the transmission of cash from place to place to
settle trade debts. Now a bill of exchange is a substitute for money. It is
immaterial whether it is payable in the place where it is drawn or not. It is
immaterial whether it is stated to be given for value received or not, for the law
itself raises a presumption that it was given for value. But though bills are a
substitute for cash payment, and though they constitute the commercial currency of
the country, they must not be confounded with money. No man is bound to take a bill
in payment of debt unless he has agreed to do so. If he does take a bill, the
instrument ordinarily operates as conditional, and not as absolute payment. If the
bill is dishonoured the debt revives. Under the laws of some continental countries,
a creditor, as such, is entitled to draw on his debtor for the amount of his debt,
but in England the obligation to accept or pay a bill rests solely on actual
agreement. A bill of exchange must be an unconditional order to pay. If an
instrument is made payable on a contingency, or out of a particular fund, so that
its payment is dependent on the continued existence of that fund, it is invalid as
a bill, though it may, of course, avail as an agreement or equitable assignment. In
Scotland it has long been the law that a bill may operate as an assignment of funds
in the hands of the drawee, and § 53 of the act preserves this rule.
Stamp.—Bills of exchange must be stamped, but the act of 1882 does not regulate the
stamp. It merely saves the operation of the stamp laws, which necessarily vary from
time to time according to the fluctuating needs and policy of the exchequer. Under
the Stamp Act 1891, bills payable on demand are subject to a fixed stamp duty of
one penny, and by the Finance Act 1899, a similar privilege is extended to bills
expressed to be payable not more than three days after sight or date. The stamp may
be impressed or adhesive. All other bills are liable to an ad valorem duty. Inland
bills must be drawn on stamped paper, but foreign bills, of course, can be stamped
with adhesive stamps. As a matter of policy, English law does not concern itself
with foreign revenue laws. For English purposes, therefore, it is immaterial
whether a bill drawn abroad is stamped in accordance with the law of its place of
origin or not. On arrival in England it has to conform to the English stamp laws.
Maturity.—A bill of exchange is payable on demand when it is expressed to be

payable on demand, or at sight, or on presentation or when notice for payment is
expressed. In calculating the maturity of bills payable at a future time, three
days, called days of grace, must be added to the nominal due date of the bill. For
instance, if a bill payable one month after sight is accepted on the 1st of
January, it is really payable on the 4th of February, and not on the 1st of
February as its tenor indicates. On the continent generally days of grace have been
abolished as anomalous and misleading. Their abolition has been proposed in
England, but it has been opposed on the ground that it would curtail the credit of
small traders who are accustomed to bills drawn at certain fixed periods of
currency. When the last day of grace is a non-business day some complicated rules
come into play (§ 14). Speaking generally, when the last day of grace falls on
Sunday or a common law holiday the bill is payable on the preceding day, but when
it falls on a bank holiday the bill is payable on the succeeding day. Complications
arise when Sunday is preceded by a bank holiday; and, to add to the confusion,
Christmas day is a bank holiday in Scotland, but a common law holiday in England.
When the code was in committee an attempt was made to remove these anomalies, but
it was successfully resisted by the bankers on alleged grounds of practical
convenience.

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BILL OF EXCHANGE

Definition.—By § 3 of the act a bill of exchange is defined to be “an unconditional

The following is a specimen of an ordinary form of a bill of exchange:—

London, 1st January 1901.

Brown & Co.

To Messrs. Smith & Sons, Liverpool.

Maturity.—A bill of exchange is payable on demand when it is expressed to be

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