Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
3.1
1
Bills of exchange
Table of Contents
International Agreements ............................................................................................... 2
Statutes ........................................................................................................................... 2
Commonwealth .......................................................................................................... 2
New South Wales ....................................................................................................... 2
3.1
Bills of Exchange ............................................................................................... 3
Introduction ................................................................................................................ 3
Form and interpretation ss4, 8 - 26 ............................................................................ 4
Negotiability .............................................................................................................. 7
The sum payable ........................................................................................................ 8
Delivery.................................................................................................................. 9
Delivery by the transferor ........................................................................................ 10
By indorsement and delivery ............................................................................... 10
Types of Bills of Exchange ...................................................................................... 13
1
Sight bills ................................................................................................. 13
2
Time bills ................................................................................................. 13
Inchoate instrument .............................................................................................. 14
Other descriptions of a bill ....................................................................................... 17
1
Claused bill .............................................................................................. 17
2
Documentary bill ..................................................................................... 17
3
Avalised bill s33 ...................................................................................... 17
4
Accommodation bill s31 .......................................................................... 17
Capacity and authority of parties, ss27 – 31 ............................................................ 18
Parties ....................................................................................................................... 18
Bearer ................................................................................................................... 18
Drawer.................................................................................................................. 18
Indorser ................................................................................................................ 19
Holder in due course ............................................................................................ 19
Payee .................................................................................................................... 21
Accommodation party.......................................................................................... 22
Stranger ................................................................................................................ 22
Transferor by delivery and transferee .................................................................. 23
Acceptance ............................................................................................................... 23
Requirements for acceptance ................................................................................... 23
1
Acceptance must be written, s22(2): ........................................................ 23
2
Acceptance by delivery, s26 and 63: ....................................................... 24
3
Acceptance by notification, ss44 and 49(1): ............................................ 25
Time for acceptance ............................................................................................. 26
General and qualified acceptances ....................................................................... 26
Acceptance for honour ......................................................................................... 27
Consideration ........................................................................................................... 28
Negotiation ............................................................................................................... 28
Liabilities ................................................................................................................. 29
Acceptor ............................................................................................................... 29
Agent .................................................................................................................... 30
Drawee ................................................................................................................. 30
Drawer.................................................................................................................. 30
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
2
Drawer and indorser ............................................................................................. 30
Indorser ................................................................................................................ 31
Stranger ................................................................................................................ 31
Transferor by delivery and transferee .................................................................. 31
Discharge of bill ....................................................................................................... 31
1
Payment in due course, s64 ...................................................................... 31
2
Banker paying demand draft where indorsement forged, s65 ................. 32
3
Acceptor the holder at maturity, s66 ........................................................ 32
4
Express waiver, s67 ................................................................................. 32
5
Cancellation, s68 ...................................................................................... 33
6
Alteration of bill, s69 ............................................................................... 33
Lost instruments ....................................................................................................... 33
Bill in a set ............................................................................................................... 34
Conflict of laws ........................................................................................................ 34
Other requisites for a valid bill of exchange ............................................................ 35
Good faith, ss35(2), 96......................................................................................... 35
Signature, ss28 – 31, 35(1), 91, 97 ...................................................................... 35
Procuration signature ........................................................................................... 36
Electronic signature ................................................................................................. 36
Defences ................................................................................................................... 37
Damages ................................................................................................................... 39
Traps for inexperienced players ............................................................................... 39
Arbitration ............................................................................................................ 39
Nomination of a particular fund ........................................................................... 40
Comparative Table ............................................................................................... 40
Bibliography ................................................................................................................ 43
International Agreements


ICC Uniform Rules for Collections 1995 (URC 522)
ICC Uniform Customs and Practice for Documentary Credits 1993 (UCP 500)
Statutes
Commonwealth






Bills of Exchange Act 1909
Cheques and Payment Orders Act 1986
Currency Act 1965 - s24 Certain days to be non-business days for purposes of
Bills of Exchange Act
Electronic Transactions Act 1999
Electronic Transactions Regulations 2000
Export Finance and Insurance Corporation Act 1991
New South Wales

Sea-Carriage Documents Act 1997 (NSW)
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
3.1
3
Bills of Exchange
Introduction
Bills of exchange are a regular feature of payment in international trade, and in
addition to their use as a means of payment, they can be used to finance the
transaction or obtain credit.
Promissory notes are dealt with in ss89 to 95 of the Bills of Exchange Act 1909 (Cth),
but are not discussed here.
For a history of bills of exchange, see Goodwin v Roberts (1875) LR 10 Ex per Lord
Cockburn CJ at 346-358.
For a summary of the Bills of Exchange Act see John Mo, International Commercial
Law (3rd Edition), Lexis Nexis Butterworths 2003, para [5.13 – 5.16], and definition
of terms at para [5.17], or any other textbook on the subject.
The advantage of a bill of exchange is that the seller receives payment as the goods
are shipped, and the buyer defers payment until receipt of the goods: Byles on Bills of
Exchange, 27th Edn Sweet & Maxwell 2002.
The Bills of Exchange Act is within the constitutional power of the Commonwealth
Parliament, s51(xvi):
Bills of exchange and promissory notes;
and see Quick & Garran, The Annotated Constitution of the Australian
Commonwealth, Legal Books, Sydney 1991 (reprint), p585:
Bills of exchange and promissory notes are a species of mercantile currency and
derived from the customs of trading communities and regulated and protected
by law. They are otherwise known as ‘negotiable instruments’ which when
drawn according to legal forms, signed by the parties intended to be bound, and
duly stamped as required by revenue laws, are regarded as incontestable
acknowledgements of debts, fixing a precise time for payment and passing from
hand to hand in a manner somewhat similar to banknotes.
Negotiable instruments, such as bills of exchange and promissory notes, come
under a branch of the law of contracts (with the possible exception of
‘insurance’…) which is specially enumerated in the list of powers conferred on
the federal Parliament.
The Bills of Exchange Act is based on the Bills of Exchange Act 1882 (UK), and has
been said to be a digest of the law on the subject; see Stock Motor Ploughs Limited v- Forsyth [1932] HCA 40; (1932) 48 CLR 128 per Dixon J at 137 – 139 and
McTiernan at 152 – 155 discussing the nature of the Bills of Exchange Act.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
4
Form and interpretation ss4, 8 - 26
The Bills of Exchange Act defines words in s4:
4 Interpretation of terms
In this Act, unless the context otherwise requires:
Acceptance means an acceptance completed by delivery or notification.
Action includes counter-claim and set-off.
Australasia means Australia, and any Territory, New Zealand, and the Fiji
Islands.
Banker includes a body of persons, whether incorporated or not, who carry on
the business of banking.
Bankrupt means any person whose estate is vested in a trustee or assignee
under the law for the time being in force relating to bankruptcy or insolvency.
Bearer means the person in possession of a bill or note which is payable to
bearer.
Bill means bill of exchange.
There is no specific form required for a bill of exchange, and all that is required
is conformity with the Bills of Exchange Act, the instrument being an
unconditional order complying with the definition in s8, being an order or
direction to pay such as ‘I promise to pay or cause to be paid’: Lovell v Hill
(1833) 6 C&P 238; 172 ER 1223.
Delivery means transfer of possession, actual or constructive, from one person
to another.
Holder means the payee or indorsee of a bill or note who is in possession of it,
or the bearer thereof.
Indorsement means an indorsement completed by delivery.
Issue means the first delivery of a bill or note, complete in form, to a person
who takes it as a holder.
Note means promissory note.
Person includes a body of persons whether incorporated or not.
Value means valuable consideration.
Written includes printed, and writing includes print.
In addition to these defined words, the following words have also been defined:

Acceptor – the drawee who has undertaken to pay the bill of exchange,
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
5
which must be in writing and can consist of its signature without more,
s22;

Drawer – the person who gives the order to pay and signs the bill of
exchange;

Drawee – the person to whom the bill is addressed;

Indorser – the payee who signs on the back of the bill. This also
includes a third party who is not a party to the bill but signs on the back
as it then incurs the liabilities of an indorser, s61;

Payee – the person named in the bill to whom or to whose order the
payment is to be made;
And s5 applies rules of bankruptcy and the common law:
5 Application of rules of bankruptcy and common law
(1) The rules in bankruptcy relating to bills of exchange, cheques, and
promissory notes, shall continue to apply thereto notwithstanding
anything in this Act contained.
(2) The rules of common law, including the law merchant, save in so far as
they are inconsistent with the express provisions of this Act, shall continue
to apply to bills of exchange, cheques, and promissory notes.
Bills of exchange are defined broadly in the Act, s8 (see comparative table below for
sections of UK Act) and includes letters of credit:
8 Bill of exchange defined
(1) 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.
(2) 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.
(3) An order to pay out 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
re-imburse 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.
(4) A bill is not invalid by reason:
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
6
(a)that it is not dated;
(b)that it does not specify the value given, or that any value has been given
therefor; or
(c)that it does not specify the place where it is drawn, or the place where it
is payable.
Disputes between parties can still arise about whether a document is a bill of
exchange:
See Rosenhain v Commonwealth Bank of Australia [1922] HCA 41; (1922) 31 CLR
46 at 51, 52. In this case the instrument contained the terms: …60 days after
sight…pay to the order of…interest at the rate of 8 per cent, per annum until arrival
of payment in London…. The plaintiff had accepted the bill but did not pay on
maturity. The issue was whether the instrument was a bill of exchange which turned
on whether it was an order in writing requiring a sum certain in money to be paid at a
fixed or determinable future time. The Court held:
The ‘sum certain’ must, however, if the document is to constitute a bill of
exchange, be payable on demand, or at a fixed or determinable future time.
“Certainty’, as Ashhurst J said in Carlos v Fancourt (1794) 5 TR 482 at 486
(101 ER 272 at 274), ‘is a great object in commercial instruments; and unless
they carry their own validity on the face of them, they are not negotiable’. Now,
the document under consideration did not fix a ‘determinable future time’ for
payment of the sums mentioned therein, but a fixed time, namely, ’60 days after
sight’. Consequently, the sum must be certain at this fixed time if it is to conform
to the provisions of the Bills of Exchange Acts. But clearly the sum was not
certain on that date, nor could it be made certain from anything appearing on
the face of the document; for interest was to run from the time fixed for payment,
namely, ’60 days after sight’ ‘until arrival of payment in London’, and it was
quite uncertain, both on the face of the document and in fact, when this event
would happen, or indeed whether it would happen at all.
In Korea Exchange Bank v Debenhams (Central Buying) Ltd [1979] 1 Lloyd’s Rep
548 the bill of exchange form stated:
…For US $298,048.00 at 90 days sight D/A of this first Bill of Exchange…Pay
to Korea Exchange Bank or…
and the word sight had been crossed out by overtyping. The issue was whether the
instrument was a bill of exchange with the meaning of the Act, ss8 and 16, was it
expressed to be payable at a fixed or determinable future time and its maturity date
was certain. The Court of Appeal held that the unusual wording ‘At 90 days D/A’
was to be interpreted as including the ‘acceptance’, and there could be sight without
acceptance, but the instrument lacked certainty as it was required to provide certainty
both as to the date of maturity if there was non-acceptance as well as if there was
acceptance. The deletion of ‘sight’ removed that certainty, and was not a bill of
exchange as defined in the Act, s16(1). The instrument was not expressed to be
payable at a fixed or determinable future time and was not a bill of exchange, see
s8(1). See Megaw LJ at 552:
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
7
I have come to the conclusion that the plaintiffs have not established that those
who have to handle bills of exchange from day to day in the market should be
expected to understand with reasonable assurance that this unusual wording is
to be interpreted as including the ‘acceptance’ part of the symbol ‘D/A’ as being
part of the order to the drawee to pay. ‘D/A’ in commercial usage is ordinarily,
at least, not any part of the order to pay directed to the drawee. If a part of the
symbol is to become an essential part of the drawer’s order to the drawee, this
has to be made clear on the face of the instrument. In this instrument, in my
judgment, it, at the best, falls short of the necessary clarity.
Since the time of those decisions in 1922 and 1979, the symbols ‘D/A’ have become
a common practice: see the Bills of Exchange Act,s5(2) which saves the common law
including the law merchant, and see URC522 Art 7(b):
…a collection contains a bill of exchange payable at a future date, the collection
should state whether the commercial documents are to be released to the
drawee against acceptance (D/A) or against payment (D/P).
Note the effect of s11 which requires identification of the drawee or drawees with
reasonable certainty:
11 Address to drawee
(1)The drawee must be named or otherwise indicated in a bill with reasonable
certainty.
(2)A bill may be addressed to two or more drawees, whether they are partners
or not, but an order addressed to two drawees in the alternative, or to two or
more drawees in succession, is not a bill of exchange.
See Arab Bank Ltd v Ross [1952] 2 QB 216 (above) where there was an error on the
face of a promissory note as the word ‘Company’ did not appear. And requires
certainty as to the payee (one of the classes of ‘holder’ defined in s4), s12.
Negotiability
Negotiability is dealt with in s13:
13 What bills are negotiable
(1) When a bill contains words prohibiting transfer, or indicating an intention
that it should not be transferable, it is valid as between the parties thereto, but is
not negotiable.
(2)A negotiable bill may be payable either to order or to bearer.
(3)A bill is payable to bearer which is expressed to be so payable, or on which
the only or last indorsement is an indorsement in blank.
(4)A bill is payable to order which:
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
8
(a) is expressed to be so payable; or
(b)is expressed to be payable to a particular person, and does not contain words
prohibiting transfer or indicating an intention that it should not be transferable.
(5)Where a bill, either originally or by indorsement, is expressed to be payable
to the order of a specified person, and not to him or his order, it is nevertheless
payable to him or his order at his option.
The question of whether a bill of exchange is negotiable is a question of law: Grant v
Vaughan (1764) 3 Burr 1516, 1523; 97 ER 957 at 961, also stating that a bill is
negotiable by delivery.
The sum payable
The sum payable must be a sum which is certain, allowing for the variables set out in
s14:
14 Sum payable
(1)The sum payable by a bill is a sum certain within the meaning of this Act,
although it is required to be paid with, by or according to, as the case requires,
any one or more of the following, namely:
(a)interest or bank charges; or
(b)stated instalments; or
(c)stated instalments, with a provision that upon default in payment of any
instalment the whole shall become due; or
(d)an indicated rate of exchange, or a rate of exchange to be ascertained as
directed by the bill.
(2)Where more than one sum is expressed to be payable in a bill, the lesser or
least, as the case may be, of the sums so expressed to be payable shall be taken
to be the only sum ordered to be paid by the bill.
(3)Where a bill is expressed to be payable with interest, unless the instrument
otherwise provides, interest runs from the date of the bill, and if the bill is
undated from the issue thereof.
The ‘sum certain’ must appear on the face of the bill of exchange: Lamberton v Aiken
(1899) 37 SLR 138 (which referred to interest); Rosenhain v Commonwealth Bank of
Australia (1922) 31 CLR 46 (interest); Standard Bank of Canada v Wildey (1919) SR
(NSW) 384 (considered the term ‘all the bank charges’ was uncertain); Tropic Plastic
Packaging Industry v Standard Bank of South Africa Ltd (1969) 4 SALR 108
(currency rate of exchange with additional words making the amount uncertain).
Where the amount payable is stated in words and numbers, an inconsistency in some
jurisdictions is not uncertain as the rule make the amount stated in words payable, see
s14(2) and also in the UK s9(2), US UCC s3-118(c), Canada s28(2), NZ s9(2), South
Africa s7(2), India s18 and countries which have adopted the Geneva Convention Art
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
9
6.
Activity:
What is the situation where the amounts are written in words in the body of the bill of
exchange, and in numerals in the margin, and the amounts differ? See Garrard v
Lewis (1882) 10 QBD 30 per Bowen LJ at 33.
Delivery
‘Issue’ means the first delivery of a bill which is complete in form to a person who
takes it as a holder, s4;
‘Delivery’ means transfer of possession from one person to another, actual or
constructive, s4.
A bill can be transferred by delivery: s26, or indorsement s36 and delivery. The
contract is not complete until first delivery occurs, s26(1), which occurs when the bill
is negotiated. Transfer by delivery does not include the first transferee (the original
payee) who is not a holder in due course as there is no negotiation. If the bill is drawn
in favour of the drawer, the first transfer is to his indorsee: see Byles on Bills of
Exchange 9-01; Jones (RE) Ltd v Waring & Gillow Ltd [1926] AC 670 (HL) where
the dispute arose over a cheque. Lord Shaw at p687 (in the majority) held:
It was never a negotiated cheque in the ordinary sense of that word or in the
sense of s.31 of the Bills of Exchange Act. The cheque never went into the circle
by transfer or indorsation, and it is in these circumstances, in my opinion,
inappropriate to use language as to ‘holder in due course’ as applicable to the
position of a direct payee of a cheque.
And Lord Carson at p699:
…the term ‘holder in due course’ cannot be held to include the original payee…
There must be delivery for contract to be complete and the bill to be valid: s26(1) and
see Citibank NA v Brown Shipley [1991] 1 Lloyd’s Rep 576.
Delivery can be constructive delivery by delivery of the bill of exchange to the
servant or agent of the transferee: Adams v Jones (1840) 12 Ad&E 455; 113 ER 884,
Lord Denman CJ stating:
…a bill may be indorsed to a party in two ways; either by a special indorsement,
making it payable to that party; or by a blank indorsement, and delivery to that
party…
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
10
But delivery does not take place if the bill is posted or sent by courier as it is not
delivery to the payee: see Acraman v South Australian Gas Co [1910] SALR 59,
unless this method of delivery was expressly or impliedly authorized.
Activity:
Consider the rules for delivery of a bill of exchange in s26, delivery of a bill of lading,
and delivery of goods in international trade.
See Sale of Goods Act 1923 (NSW) s35; Vienna Convention on the International Sale
of Goods Art 31(a) and 67; Bank of Australia v Lohmann [1919] VLR 418; Midland
Bank Ltd v Eastcheap Dried Fruit Co [1961] 2 Lloyd’s Rep 251, [1962] 1 Lloyd’s
Rep 359; The Prinz Aldabert [1917] AC 586; Guaranty Trust Co of New York v
Hannay & Co [1918] 2 KB 623.
Delivery by the transferor
S63 provides for the holder of a bill payable to bearer to negotiate it without indorsing
it:
63 Transferor by delivery and transferee
(1) Where the holder of a bill payable to bearer negotiates it by delivery
without indorsing it, he is called a transferor by delivery.
(2) A transferor by delivery is not liable on the instrument.
(3) A transferor by delivery who negotiates a bill thereby warrants to his
immediate transferee being a holder for value that the bill is what it
purports to be, that he has a right to transfer it, and that at the time of
transfer he is not aware of any fact which renders it valueless.
By indorsement and delivery
Indorsement is defined in the Bills of Exchange Act ss4 and 37, and it must be on the
bill and three aspects must be considered: Arab Bank v Ross [1952] 2 QB 216 per
Lord Denning at 226 -229:
(a)
regularity for the purposes of holder in due course, s 34;
(b)
capacity for passing title;
(c)
capacity for imposing liability.
In Arab Bank v Ross [1952] 2 QB 216 the Arab Bank claimed on a promissory note
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
11
as a holder in due course. The mandate referred to ‘Fathi and Faysal Nabulsy
Company’ as payees, but had been endorsed by a partner with the words ‘Fathi and
Faysal Nabulsy’, the word ‘Company’ being omitted. The Court held that omission
of ‘Company’ was sufficient to create reasonable doubt whether the payee and the
indorser were necessarily the same. The bank could not succeed as holders in due
course within s29 of the Bills of Exchange Act 1882 (UK), s34 of the Australian Act.
Lord Denning said, at p226:
The first question in this case is whether the Arab Bank Ld. Were holders in due
course of the promissory note, and that depends on whether, at the time they
took it, it was ‘complete and regular on the face of it’ within section 29 of the
Bills of Exchange Act, 1882…
Regularity is a different thing from validity. The Act itself makes a careful
distinction between them. On the one hand an indorsement which is quite invalid
may be regular on the face of it. Thus the indorsement may be forged or
unauthorized and, therefore, invalid under section 24 of the Act, but
nevertheless there may be nothing about it to give rise to any suspicion. The bill
is then quite regular on the face of it. Conversely, an indorsement which is quite
irregular may nevertheless be valid. Thus, by a misnomer, a payee may be
described on the face of the bill by the wrong name, nevertheless, if it is quite
plain that the drawer intended him as payee, then an indorsement on the back by
the payee in his own true name is valid and sufficient to Pass the property in the
bill… but the difference between front and back makes the indorsement
irregular unless the payee adds also the misnomer by which he was described
on the front of the bill…
Regularity is also different from liability. The Act makes a distinction between
these two also. On the one hand a person makes an irregular indorsement is
liable thereon despite the irregularity. Thus, if a payee, who is wrongly
described on the front of the bill, indorses it in his own true name, the
indorsement is irregular, but he is liable to any subsequent holder and cannot
set up the irregularity as a defence; or, if he is rightly described on the front of
the bill, but indorses it in an assumed name, the indorsement is irregular but he
is liable thereon as if he had indorsed it in his own name: see section 23 (1) and
section 55 (2) of the Act. Conversely, a regular indorsement will not impose
liability if it is forged or unauthorized. Thus, where a firm is the payee, but is
described in an unauthorized name which is substantially different from its real
name, an indorsement by one partner in that name does not impose liability on
the other partners…It would be otherwise if the name was substantially the
same…
Once regularity is seen to differ both from validity and from liability, the
question is when is an indorsement irregular? The answer is, I think, that it is
irregular whenever it is such as to give rise to doubt whether it is the
indorsement of the named payee. A bill of exchange is like currency. It should be
above suspicion. But if it is asked: When does an indorsement give rise to
doubt? I would say that that is a practical question which is, as a rule, better
answered by a banker than a lawyer. Bankers have to consider the regularity of
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
12
indorsements every week, and every day of every week, and every hour of every
day; whereas the judges sitting in this court have not had to consider it for these
last 20 years. So far as I know the last occasion was in Slingsby's case.
The Law Merchant is founded on the custom of merchants, and we shall not go
far wrong if we follow the custom of bankers of the City of London on this point.
They have given evidence that they would not accept the indorsements in this
case as a regular indorsement. They said that if a bill is made payable to ‘Fathi
and Faysal Nabulsy Company’ they would not accept an indorsement ‘Fathi and
Faysal Nabulsy.’ I think there is good sense in their view. For aught they know,
in Palestine the word ‘company’ may be of vital significance. It may there
signify a different legal entity, just as the word ‘limited’ does here…or it may
signify a firm of many partners and not merely two of them. I agree with the
bankers that this indorsement does give rise to doubt whether it is the
indorsement of the named payee. It was, therefore, irregular.
It was suggested that this attitude of bankers was an excess of caution in their
own interests. They insist on strict conformity, it was said, so as to be able to
avail themselves of the protection of sections 60, 79, 80 and 82 of the Act of
1882, which they feared they might lose if they paid on an indorsement which
did not correspond exactly with the name of the payee. But it is to be noticed
that this usage of bankers goes back to times long before those sections were
part of the law. The usage certainly existed in 1834…whereas section 60 did not
appear, even in its original form, until 1853, and sections 79, 80 and 82 not till
1878. The truth is, I think, that the bankers adopted this strict attitude both in
their own interests and also in the interests of their customers. It would be quite
impossible for them to make inquiries to see that all the indorsements on a bill
are in fact genuine; but they can at least see that they are regular on the face of
them: see Bank of England v. Vagliano, per Lord Macnaghten. That is some
safeguard against dishonesty. It is a safeguard which the bankers have taken for
the past 120 years at least, and I do not think we should throw any doubt today
on the correctness of their practice.
Activity:
List the key points in Lord Denning’s decision in Arab Bank Ltd v Ross [1952] 2 QB
216.
See Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd [1968] 2 QB
839 involving a bill of exchange where the holder inscribed words of acceptance:
‘Accepted payable. …For and on behalf of M. Jackson (Fancy Goods) Ltd’.,
Manchester’
The question was whether the director who signed on behalf of the company was
personally liable, and whether the principle of equitable estoppel arose. Donaldson J
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
13
held that ‘M’ was not an acceptable abbreviation for ‘Michael’, and the director was
liable to plaintiff who were holders of the bill of exchange. But, the plaintiff could
not enforce that liability because they had themselves inscribed the wrong words of
acceptance, thereby implying that acceptance of the bill in that form would be, or
would be accepted by them as, a regular acceptance of the bill: in seeking to rely on
their own error coupled with the director’s failure to detect and remedy it as entitling
them to relief, they were bound by the equitable principle of promissory estoppel.
Indorsement is invariably on the back of the bill, but due to several indorsements
there may be no room on the back and the indorsement appears on the front, or on a
slip of paper annexed to the bill, which is referred to as ‘allonge’. There is a danger
for an indorsee on the front if his signature appears below that of the maker as he may
appear to be a maker, and assume liability as a maker if he does not clearly indicate he
is an indorsee: Triggs v English [1924] 4 DLR 937.
Types of Bills of Exchange
There are two types of bill of exchange under ss15 (sight bill) and 16 (time bill), and
an inchoate instrument (s25) is neither until it is complete. Bills of exchange are also
referred to as being ‘claused’, ‘documentary’, ‘avalised’ and ‘accommodation’ which
is dealt with below.
1
Sight bills
The feature of a sight bill is that it is payable on demand, on satisfaction of the
conditions in s15(1):
15 Bill payable on demand
(1)
A bill is payable on demand:
(a)which is expressed to be payable on demand, or at sight, or on
presentation; or
(b)in which no time for payment is expressed.
Or, once the specified date for payment is overdue s15(2):
(2)
2
Where a bill is accepted or indorsed when it is overdue, it shall, as regards
the acceptor who so accepts, or any indorser who so indorses it, be
deemed a bill payable on demand
Time bills
See ss16 – 19.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
14
16 Bill payable at a future time
A bill is payable at a determinable future time within the meaning of this Act
which is expressed to be payable:
(a) at a fixed period after date or sight; or
(b) on or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening may be uncertain.
An instrument expressed to be payable on a contingency is not a bill, and the
happening of the event does not cure the defect.
‘Determinable future time’ means a time which is ascertainable and certain: Korea
Exchange Bank v Debenhams (Central Buying) Ltd [1979] 1 Lloyd’s Rep 548 and the
bill of exchange is presented before the date of maturity: Yeoman Credit Ltd v
Gregory [1963] 1 All ER 245.
In the UK a promissory note stated to be payable ‘on or before’ a date does not
comply with s16: Claydon v Bradley [1987] 1 WLR 521 (CA) which followed its
earlier decision in Williamson v Rider [1963] 1 QB 89, but note the dissenting
judgment of Ormerod LJ who stated that although there was a right to pay earlier, the
bill was payable at a fixed or determinable future time, at p102:
…hold the view that the term ‘on or before’ means that there is a fixed date for
payment…that the promisor binds himself to pay on that date, and if he fails can
be sued under his promissory note, but if he chooses to pay – and it is purely a
matter for him – at an earlier date…then the holder of the bill is under an
obligation to accept that payment
and continuing at p103:
…the money which is payable on December 31, 1956, may be paid at an earlier
date if the promisor chooses to pay it; but he is under no obligation to pay it.
He cannot be sued in respect of it; and, if he chooses to do nothing, nothing can
happen until the date fixed for payment…
and at p105:
I have come to the view that in spite of the words ‘on or before,’ there is no
uncertainty about the date of payment under this promissory note…I have come
to the conclusion, therefore, that this is a promissory note within the meaning of
section 83 of the Bills of Exchange Act.
Lord Ormerod’s decision has since been adopted in the US UCC s3-109, and in
Canada: John Burrows Ltd v Subsurface Surveys Ltd (1968) 68 DLR (2D) 354.
Inchoate instrument
An Inchoate instrument is a partial or unfinished instrument, becoming valid only
when complete. An inchoate instrument is neither a bill of exchange or a promissory
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
15
note, s25:
25 Inchoate instruments
(1)
Where a simple signature on a blank stamped paper stamped with an
impress duty stamp is delivered by the signer in order that it may be
converted into a bill, it operates as a prima facie authority to fill it up as a
complete bill for any amount the stamp will cover, using the signature for
that of the drawer or the acceptor or an indorser.
(2)
And in like manner when a bill is wanting in any material particular, the
person in possession of it has a prima facie authority to fill up the
omission in any way he thinks fit.
(3)
In order that any such instrument when completed may be enforceable
against any person who became a party thereto prior to its completion, it
must be filled up within a reasonable time, and strictly in accordance with
the authority given. Reasonable time for this purpose is a question of fact:
Provided that, if any such instrument after completion is negotiated to a
holder in due course, it shall be valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up within a reasonable
time and strictly in accordance with the authority given.
(4)
For the purposes of subsection (1) of this section, duty stamp includes a
duty stamp, required, by the law of the State in which the instrument is
issued, to be impressed on a bill.
An instrument (although completed in its form in other respects) is inchoate until it is
delivered, and becomes a valid bill of exchange when it is delivered: Citibank NA v
Shipley [1991] 1 Lloyd’s Rep 576. An acceptance written on an instrument which
does not contain the name of a drawer or payee and is not addressed to anyone:
Haseldine v Winstanley [1936] 2 KB 101 such that if the instrument is completed as
required in s25 and purports to be addressed to the acceptor, it is valid as a bill, but if
the name of the drawee is omitted and it is completed and accepted, it becomes a
promissory note.
In Haseldine v Winstanley [1936] 2 KB 101 M drew a document in the form of a bill
of exchange but with no addressee or drawee inserted, and payable 90 days after date.
The defendant was induced by fraud to sign an acceptance written across the
instrument. M took the documents to the plaintiff and requested him to get them
discounted at the plaintiff’s bank. The plaintiff (by mistake) inserted M’s name as the
addressee and took them to the bank which refused to discount them. M then asked
the plaintiff to discount them, and before doing so, the plaintiff in the presence and
with the consent of M, crossed out M’s name as addressee and wrote the defendant’s
name. The plaintiff, as bona fide holder for value without notice of fraud, presented
the bill to the defendant who refused to pay. The question was whether the document
was valid as a promissory note, and the liability of the acceptor to a bona fide holder
for value without notice. The Court held that the insertion of the defendant’s name as
addressee was within s20 of the Bills of Exchange Act 1882 (UK) (s25 of Aust Act)
so that the documents were bills of exchange on which the defendant could be sued;
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
16
the alteration was not a material alteration within the meaning of s64 of the UK Act
(s69 Aust Act); and even if they were not bills of exchange they were good as
promissory notes on which the defendant could be sued by a bona fide holder for
value without notice, see below:
Activity:
What is a reasonable time within the meaning of s25 of the Bills of Exchange Act
1909 (Cth)?
See Griffiths v Dalton [1940] 2 KB 264.
S25 also remedies a defect which arises where the logical operations of a bill of
exchange are not followed: In Glenie v Bruce Smith [1908] 1 KB 263 (CA) the
defendant entered into an agreement with the plaintiff to guarantee the payment by T
for goods sold to him by the plaintiff, and indorsed bills accepted by T for the amount.
T wrote his acceptance across the face of the blank stamped bills of exchange form
and the defendant indorsed them. T handed the bills forms to the plaintiff who filled
the body of the bills with the agreed amount, making them payable to his order. The
plaintiff signed as drawer and also indorsed them. The plaintiff duly delivered the
goods to T who was unable to pay for them. The defendant argued that the plaintiff as
drawer of the bills could not sue the defendant, or that because the bills were indorsed
in blank they were invalid. The Court of Appeal held that as the defendant had agreed
to be liable for the price of the goods supplied to T, and indorsed the bills, he was
liable to the plaintiff on the bills. Fletcher Moulton LJ at 267:
The logical order of operations with regard to a bill is, no doubt, that the bill
should be first filled up, then that it should be signed by the drawer, then that it
should be accepted, then that it should be negotiated and then that it should be
indorsed by the persons who become successively holders; but it is common
knowledge that parties very often vary, in a most substantial manner, the logical
order of those proceedings, and section 20 of the Bills of Exchange Act is
intended to deal with those cases. That section says that where a person signs
his name on a blank stamped sheet of paper, and delivers it in order that it may
be converted to a bill, it prima facie gives authority to fill it up as a complete
bill for any amount the stamp will cover, using the signature for that of the
drawer or the acceptor or an indorser; and in like manner when a bill is
wanting in any material particular the person in possession of it has a prima
facie authority to fill up the omission in any way he thinks fit. If you choose to
anticipate the logical order of events and give that uncompleted document to a
person in order that it may be made a complete bill, then he has a prima facie
authority to fill up the omission.
With regard to the rights of the parties, as against persons who do not become
parties to the bill until after it is complete, it is a complete bill, and all the
ordinary rules of law with regard to complete bills apply…it is sufficient to say
that the bill is enforceable in the hands of a holder in due course.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
17
Now we come to the case of those who become parties to the bill while it is still
incomplete. Their rights are limited and are defined very clearly in the second
paragraph of s.20…The plain meaning of that enactment is that in the case of a
bill so filled up persons have just the same rights as persons in the same
position with regard to an ordinary bill, provided there has not been a de facto
exceeding of the authority, and provided the bill is filled up in a reasonable
time.
(s20 UK is s25 Cth)
An incomplete instrument which is completed in accordance with s25 becomes a bill
of exchange as if never defective, and is retrospectively enforceable: McDonald
(Gerald) & Co v Nash & Co [1924] AC 625.
S37(d) allows correction of misdescription of the payee or indorsee in a bill of
exchange:
(d)
Where, in a bill payable to order, the payee or indorsee is wrongly
designated, or his name is mis-spelt, he may indorse the bill as therein
described, adding, if he thinks fit, his proper signature.
Other descriptions of a bill
1
Claused bill
This occurs where there are additional clauses for the amount or method of payment,
eg exchange rate, interest and bank charges: see Schmitthoff, 9th Edn pp 386 – 9.
2
Documentary bill
Where payment of the bill is the condition for collection of shipping documents: see
Schmitthoff, 9th Edn pp 389.
3
Avalised bill s33
Where there is a signature of a person who guarantees payment to the holder in due
course, s33.
4
Accommodation bill s31
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
18
Where there is an accommodation party, a person who signed as a drawer, acceptor
or indorser without receiving value for the purpose of lending his or her name; s31;
Rolfe Lubbell & Co v Keith and Greenwood [1979] 2 QB 75. The court should look
at the bill as a whole and the object of the Act was to make the bill valid if this was
possible: Maxform SpA v Mariana and Goodville Ltd [1981] 2 Lloyd’s Rep 54.
Capacity and authority of parties, ss27 – 31
Parties
A bill of exchange usually involves three different parties in an international
commercial transaction, ‘drawer’, ‘drawee’ and ‘holder’ (‘holder’ is defined in s4 as
the payee, indorsee in possession, or the bearer; and ‘bearer’ means the person in
possession of a bill or note which is payable to bearer), but s10 recognises that this is
not always the situation as a single party may play different roles, such as being both
the drawer and drawee, or drawer and holder (in its capacity defined in s4):
10 Effect where different parties to bill are the same person
(1)A bill may be drawn payable to, or to the order of, the drawer; or it may be
drawn payable to, or to the order of, the drawee.
(2)Where, in a bill, drawer and drawee are the same person, or where the
drawee is a fictitious person or a person not having capacity to contract, the
holder may treat the instrument, at his option, either as a bill of exchange or as
a promissory note.
Bearer
A bearer is defined in s4 as being a holder, that is the person in possession of a bill or
note which is payable to bearer.
Drawer
S60(1) sets out the liability of the drawer which is secondary and conditional
(depends on the holder taking action upon dishonour):
(1)
The drawer of a bill, by drawing it:
(a) engages that on due presentment it shall be accepted and paid
according to its tenor, and that if it is dishonoured he will
compensate the holder or any indorser who is compelled to pay it,
provided that the requisite proceedings on dishonour are duly taken;
and
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
(b)
19
is precluded from denying to a holder in due course the existence of
the payee and his then capacity to indorse.
Indorser
S60(2) sets out the liability of the indorser who is liable to each subsequent holder if
the drawee defaults on acceptance or payment:
(2)
The indorser of a bill, by indorsing it:
(a) engages that on due presentment it shall be accepted and paid
according to its tenor, and that if it is dishonoured he will
compensate the holder or a subsequent indorser who is compelled to
pay it, provided that the requisite proceedings on dishonour are duly
taken; and
(b) is precluded from denying to a holder in due course the genuineness
and regularity in all respects of the drawer’s signature and all
previous indorsements; and
(c) is precluded from denying to his immediate or a subsequent indorsee
that the bill was at the time of his indorsement a valid and subsisting
bill, and that he had then a good title thereto.
Holder in due course
A holder and a bearer are defined in s4:

Holder means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof;

Bearer means the person in possession of a bill or note which is payable
to bearer.
A holder in due course is identified in s34:
34 Holder in due course
(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;
and
(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
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
20
for an illegal consideration, or when he negotiates it in breach of faith, or
under such circumstances as amount to a fraud.
(3)
A holder (whether for value or not) who derives his title to a bill through a
holder in due course, and who is not himself a party to any fraud or
illegality affecting it, has all the rights of that holder in due course as
regards the acceptor and all parties to the bill prior to that holder.
The rights of the holder are set out in s43, and the general duties of the holder in ss44
– 57.
See Jade International Steel Stahl Und Eisen GmbH & Co KG v Robert Nicholas
(Steels) Ltd [1978] 1 QB 917 where the bill of exchange was indorsed by the plaintiff
and discounted to their bank in Germany which then transferred the bill through
another bank to the Midland Bank in the UK. It was accepted by the defendant, but
dishonoured on presentation for payment due to a dispute about the quality of the
steel, and the defendant refused to accept the second consignment of steel. The bill
was then returned (via the same banking route) to the original German bank which
debited the plaintiff’s account with the amount of the bill and handed it back. The
plaintiff sued the defendant claiming the amount of the dishonoured bill, as well as for
breach of contract for refusing to accept the steel. At first instance, Donaldson J gave
judgment for the amount of the bill, the plaintiff derived title to the bill (not as
drawers) but from the holder in due course, thereby being entitled to immediate
payment: see Geoffrey Lane LJ at 921 who recites Donaldson’s judgment:
The bill was for payment in the future, and the plaintiffs indorsed the bill to their
bankers in order to obtain cash… the only reason why the plaintiffs have the bill
in their possession is because of the activities...of the defendants thereafter in
dishonouring the bill. The bankers have taken advantage of their rights of
compulsory recovery against the plaintiffs to place the bill in the hands of the
plaintiffs and debit the plaintiffs’ account. The plaintiffs stand in the shoes of
the banks, each of which have the undoubted right not only to judgment but also
to immediate payment against the defendants without the possibility of being met
by any set off or counterclaim.
I therefore think it right to treat the plaintiffs as being in the same position as
the banks would have been had they sued upon this bill.
The Court of Appeal (Stephenson, Geoffrey Lane and Cumming-Bruce L.JJ affirmed
the decision of Donaldson J and held that although the plaintiff was the drawer of the
bill, they derived their title from the holder in due course and by virtue of s29(3) of
the Bills of Exchange Act 1882 (s34(3) of the Australian Act) they were the holders
of the bill and had all the rights of a holder in due course. Their rights were to be
determined as holders in due course, and not in their capacity as the drawer. See
Inflatable Toy Company Pty Ltd v State Bank of New South Wales (1994) 34
NSWLR 243 (Young J). See Osterreichische Landerbank v S’Elite Ltd [1980] 2
Lloyd’s Rep 139 where the holder in due course was not aware of a fraud at the time
of transfer.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
21
Payee
S12 requires certainty about the payee:
(1)
Where a bill is not payable to bearer, the payee must be named or
otherwise indicated therein with reasonable certainty.
(2)
A bill may be made payable to two or more payees jointly, or it may be
made payable in the alternative to one of two, or one or some of several
payees. A bill may also be made payable to the holder of an office for the
time being.
A bill of exchange (not payable to bearer) in the hands of a third party who is not the
intended payee can not acquire or convey a title: Mead v Young (1790) 4 TR 28; 100
ER 876 which was payable to the named person and by another person of identical
name was indorsed to the plaintiff, and was held to be a forgery, and invalid:
(3)
Where the payee is a fictitious or non-existing person, the bill may be
treated as payable to bearer.
The reason is that a genuine indorsement is impossible, and a holder for value (even if
taking in the belief that the indorsement is genuine), can not enforce the bill unless it
can be treated as payable to bearer: See Bank of England v Vagliano (1889) 23 QBD
243 and on appeal [1891] AC 107 (HL), involving what appeared to be a bill of which
was manufactured by a person who forged the signature of the named payee,
presented the document for payment, whilst the named drawer and named payee were
both unaware of what was happening. The House of Lords held that the bank was
entitled to debit its customer, the acceptor (Vagliano who had given them a
genuineness by accepting them), with the amounts, although paid to the forger or his
agent and were not paid to a bona fide holder of the documents for value or to any
person who could sue the acceptor on them, because the named payee was a fictitious
or non-existing person within s7(2) of the Bills of Exchange Act 1882 (UK)), and the
document might be treated as bills payable to bearer. Lord Halsbury at p116 -117 sets
out the reasons for this finding:
Now, when it is insisted that the bankers are responsible because they did not
pay the person indicated as payee, one is induced to ask whether Mr Vagliano
or any other merchant would have expected that any inquiry should be made as
to the genuineness of Petridi’s signature. Suppose they had been genuine
signatures of Petridi and the bills had been dishonoured while the bankers were
making inquiries, would not Mr Vagliano have had grave ground for complaint
against the bakers who had allowed his credit to be thus disturbed? I think each
of the parties to the transaction must be taken to have known the ordinary
course of mercantile affairs, and it is manifest that no banker could hesitate to
pay such bills as came to him, so accredited as they were by Mr Vagliano’s
acceptance, without throwing the whole mercantile world into confusion…a
case where a thing which bears the form and semblance of a known commercial
document like a bill of exchange gets by the act of the customer into the hands of
the banker, where there is no real drawer, no real transaction between himself
and the supposed drawer, and where, as a matter of fact, there is no person who
is the proper and ordinary sense of the word is a payee at all?
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
22
It seems to me that if all these circumstances, acting upon and inducing the
bankers to make the payments they did make, are acts which are the fault of the
customer…
A bill is payable to the bearer where the payee is a non-existing person or although
existing, had never intended to have any rights as his name was inserted only as a
pretence: see Bank of England v Vagliano [1891] AC 107 (HL), Lord Halsbury at
121, 122; Lord Watson at 132; Lord Herschell at 152 and 153. Lords Bramwell and
Field dissented, holding that a banker cannot charge his customer with the amount of
a bill paid to a person who had no right of action against the customer, the acceptor,
and the bill was not a bill payable to bearer.
Accommodation party
This party signs the bill without receiving value, for the pupose of lending his name
(and credit) to another person, s33(1) and is liable to a holder for value regardless of
whether the holder knew the person was an accommodation party, s33(2).
Stranger
S61 provides for a party who signs the bill of exchange other than as a drawer or
acceptor, and who thereby incurs the liability of an indorser to a holder in due course:
see Gerald McDonald & Co v Nash & Co [1924] AC 625 (HL) which involved a bill
of exchange which the respondent agreed to indorse bills of exchange to be drawn by
the appellant on A & Co payable six months after date and to the appellant’s order.
The bills were then immediately drawn by the appellant on A & Co without waiting
six months, and indorsed by the respondent. The respondent left room above its
signature for the indorsement of any name to whom the appellant should direct
payment. The respondent handed the bills to the appellant in exchange for delivery
orders. Shortly before the bills became due, the appellant indorsed its name as payees
in the space above the respondent’s signature. The appellants duly presented the bills
to A & Co who dishonoured them. The appellant then gave notice of dishonour and
claimed payment from the respondent, which denied liability. The House of Lords
held that the respondent must be taken to have intended to make themselves liable to
the appellant on the bills, and that the bills, when handed to the appellant were
wanting in a material particular under s20 of the Bills of Exchange Act 1882 (Aust
Act s25) by reason of the absence of any indorsement by the appellant above the
signature of the respondent. The appellant had implied authority to insert its name as
payee (as they did) above the name of the respondent, and that when the bills were so
completed, they became retrospectively enforceable. See Lord Sumner at 645 – 652.
…an indorser both in fact and in law and might in a question with subsequent
holders be subject to all the liabilities of a proper indorser, he could not thus be
interpolated as a party between drawer and acceptor. There is nothing here to
touch the case of an indorser, who by arrangement and in order to make himself
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
23
liable to the drawer, writes his name as indorser first, and for convenience
leaves the drawer to write his name higher up, afterwards…
see also G & H Montage GmbH v Irvani [1990] 1 WLR 667 (CA); Cardinal Financial
Investments Corp v Central Bank of Yemen [2001] Lloyd’s Rep Banking 1; Ferrier v
Stewart (1912) 15 CLR 32; and Cook v Fenton (1892) 11 NZLR 505; Erikssen v
Bunting (1901) 20 NZLR 388.
Transferor by delivery and transferee
A Transferor by delivery is defined as the holder payable to bearer who negotiates it
but does not indorse it, s63(1). The transferee is the person to whom it is transferred,
s63(3).
Acceptance
See ss 4, 22, 24(3), 26(1), 44, 46, 58, 59, 70 - 72.
Acceptance is defined in The Bills of Exchange Act, s4:
Acceptance means an acceptance completed by delivery or notification.
Which means that the drawee (or its agent) will make the payment due.
Requirements for acceptance
Ss22 to 24 set out the requirements for acceptance.
1
Acceptance must be written, s22(2):
22 Definition and requisites of acceptance
(1)The acceptance of a bill is the signification by the drawee of his assent to the
order of the drawer.
(2) An acceptance is invalid unless it complies with the following conditions,
namely:
(a)It must be written on the bill and be signed by the drawee. The mere
signature of the drawee, without additional words, is sufficient.
(b)It must not express that the drawee will perform his promise by any other
means than the payment of money.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
24
A person can not be liable as acceptor under a bill of exchange if not the drawee
(described as another person) although he had signed without any addition to his
signature or mention of the second defendant company: Maxform SpA v Mariana and
Goodville Ltd [1981] 2 Lloyd’s Rep 54.
2
Acceptance by delivery, s26 and 63:
26 Delivery
(1)Every contract on a bill, whether it be the drawer’s, the acceptor’s, or an
indorser’s, is incomplete and revocable, until delivery of the instrument in order
to give effect thereto:
Provided that where an acceptance is written on a bill, and the drawee gives
notice to or according to the directions of the person entitled to the bill that he
has accepted it, the acceptance then becomes complete and irrevocable.
(2)As between immediate parties, and as regards a remote party other than a
holder in due course, the delivery:
(a)in order to be effectual, must be made either by or under the authority of the
party drawing, accepting, or indorsing, as the case may be; or
(b)may be shown to have been conditional or for a special purpose only, and not
for the purpose of transferring the property in the bill.
But if the bill be in the hands of a holder in due course, a valid delivery of the
bill by all parties prior to him, so as to make them liable to him, is conclusively
presumed.
(3)Where a bill is no longer in the possession of a party who has signed it as a
drawer, acceptor, or indorser, a valid and unconditional delivery by him is
presumed until the contrary is proved.
which is to be read in conjunction with ss 44 and 58 with the effect that the bill is
valid against the drawee in the circumstances of s44 (acceptance by presentation),
only after the drawee has accepted it.
Although acceptance can be conditional: s26(2)(b), the drawing of the bill must be
unconditional: ss8 and s10, otherwise it does not meet the requirements to be a bill of
exchange, and is payable on demand: s15, or at a determinable future time: s16.
16 Bill payable at a future time
A bill is payable at a determinable future time within the meaning of this Act
which is expressed to be payable:
(a) at a fixed period after date or sight; or
(b) on or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening may be uncertain.
An instrument expressed to be payable on a contingency is not a bill, and the
happening of the event does not cure the defect.
but must not be subject to a contingency: s16 above.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
25
See Carlos v Fancourt (1794) 5 TR 482 per Lord Kenyon at 485; # ER #:
It would perplex the commercial transactions of mankind, if paper securities of
this kind were issued out into the world, encumbered with conditions and
contingencies, and if the persons to whom they were offered in negotiation were
obliged to inquire when these uncertain events would probably be reduced to a
certainty.
Delivery can be effected by the holder of a bill payable to bearer negotiating it by
delivery, but without indorsing it: see s63:
63 Transferor by delivery and transferee
3
(1)
Where the holder of a bill payable to bearer negotiates it by delivery
without indorsing it, he is called a transferor by delivery.
(2)
A transferor by delivery is not liable on the instrument.
(3)
A transferor by delivery who negotiates a bill thereby warrants to his
immediate transferee being a holder for value that the bill is what it
purports to be, that he has a right to transfer it, and that at the time of
transfer he is not aware of any fact which renders it valueless.
Acceptance by notification, ss44 and 49(1):
Qualified acceptance is a change to the original terms and gives the holder, bearer or
indorsee the option to accept or reject the bill of exchange, s49(1) and see s44:
44 When presentment for acceptance is necessary
(1)
Where a bill is payable after sight, presentment for acceptance is
necessary in order to fix the maturity of the instrument.
(2)
Where a bill expressly stipulates that it shall be presented for acceptance,
or where a bill is drawn payable elsewhere than at the residence or place
of business of the drawee, it must be presented for acceptance before it can
be presented for payment.
(3)
In no other case is presentment for acceptance necessary in order to
render liable any party to the bill.
(4)
Where the holder of a bill, drawn payable elsewhere than at the place of
business or residence of the drawee, has not time, with the exercise of
reasonable diligence, to present the bill for acceptance before presenting
it for payment on the day that it falls due, the delay caused by presenting
the bill for acceptance before presenting it for payment is excused, and
does not discharge the drawer and indorsers.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
26
Time for acceptance
S23 sets out the time for acceptance:
(1) A bill may be accepted:
(a) before it has been signed by the drawer, or while otherwise
incomplete;
(b) when it is overdue, or after it has been dishonoured by a previous
refusal to accept, or by non-payment.
(2) When a bill payable after sight is dishonoured by non-acceptance and the
drawee subsequently accepts it, the holder, in the absence of any different
agreement, is entitled to have the bill accepted as of the date of first
presentment to the drawee for acceptance.
Which may be at a determinable future time: see s16.
When the drawee accepts the bill of exchange he becomes liable, s59:
59 Liability of acceptor
(a) engages that he will pay it according to the tenor of his acceptance; and
(b) is precluded from denying to a holder in due course:
(i) the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the bill; and
(ii) in the case of a bill payable to drawer’s order, the then capacity of
the drawer to indorse, but not the genuineness or validity of his
indorsement; and
(iii) in the case of a bill payable to the order of a third person, the
existence of the payee and his then capacity to indorse, but not the
genuineness or validity of his indorsement.
In s59(a) the words ‘according to the tenor of his acceptance’ refers to the acceptor
who makes his acceptance conditional or partial, see s24.
General and qualified acceptances
Acceptance can be either a general acceptance (ie without qualification) or a
qualified acceptance s24(2). Qualified acceptance means that the terms of the bill of
exchange have been varied:
24 General and qualified acceptances
(1) An acceptance is either:
(a) general; or
(b) qualified.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
27
(2) A general acceptance assents without qualification to the order of the
drawer. A qualified acceptance in express terms varies the effect of the
bill as drawn.
(3) In particular an acceptance is qualified which is:
(a) conditional, that is to say, which makes payment by the acceptor
dependent on the fulfilment of a condition therein stated; or
(b) partial, that is to say, an acceptance to pay part only of the amount
for which the bill is drawn; or
(c) local, that is to say, an acceptance to pay only at a particular
specified place; or
(d) qualified as to time; or
(e) the acceptance of some one or more of the drawees, but not of all.
(4) An acceptance to pay at a particular place is a general acceptance, unless
it expressly states that the bill is to be paid there only, and not elsewhere.
Where the bill of exchange is qualified, the holder, bearer or indorsee may accept or
reject the qualified acceptance, s49:
49 Duties as to qualified acceptances
(1)
The holder of a bill may refuse to take a qualified acceptance, and if he
does not obtain an unqualified acceptance may treat the bill as
dishonoured by non-acceptance.
(2)
Where a qualified acceptance is taken, and the drawer or an indorser has
not expressly or impliedly authorized the holder to take a qualified
acceptance, or does not subsequently assent thereto, such drawer or
indorser is discharged from his liability on the bill.
The provisions of this subsection do not apply to a partial acceptance,
whereof due notice has been given. Where a foreign bill has been accepted
as to part, it must be protested as to the balance.
(3)
When the drawer or indorser of a bill receives notice of a qualified
acceptance, and does not within a reasonable time express his dissent to
the holder, he shall be deemed to have assented thereto.
Acceptance for honour
Acceptance for honour occurs when the acceptor by accepting a bill, promises he will
pay the bill as for s59(a) if it is not paid by the drawee: see ss70 – 73 which deal with
the following subjects:
70 Acceptance for honour supra protest
71 Liability of acceptor for honour
73 Payment for honour supra protest
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
28
Consideration
The consideration for a bill of exchange is set out in ss32 to 35:
32
Value and holder for value
33
Accommodation bill or party
34
35
Holder in due course
Presumption of value and good faith
Negotiation
Negotiation is set out in a number of sections, see s 13, 36 to 43. Negotiation is not
defined in the Bills of Exchange Act, but s13 sets out rules for determining which
bills are negotiable:

Payable to order or bearer, s13(2);

Payable to bearer when it states that, s13(3).

When the only or last indorsement is in blank, s13(3);

Payable to order when it states that, s13(4)(a);

Payable to order when expressed to be payable to a particular person (without
words or indication of intention prohibiting transfer), s13(4)b);
and which are not negotiable(although it remains valid between the parties):

When the bill contains words prohibiting transfer, s13(1);

Indicating an intention that it should not be transferable, s13(1).

S13(5) provides that where a bill, either originally or by indorsement, is
expressed to be payable to the order of a specified person, and not to him or
his order, it is nevertheless payable to him or his order at his option.
See Hibernian Bank v Gysin & Hanson [1938] 2 KB 384, and on appeal [1939] 1 KB
483 (CA). In this case the bill of exchange was crossed ‘ Not negotiable’ and ‘to the
order of Irish Casing Co Ld, only’. The defendants were the drawees and acceptors
of the bill. The drawers indorsed the bill to the plaintiff for value, and when the bill
was dishonoured by non-payment, the plaintiffs sued the defendant for the amount.
The Irish Casing Co Ld was indebted to the defendant for a greater sum than the
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
29
mount in the bill. The Court held that the bill was drawn by the Irish Casing Co Ld
and accepted by the defendant on the basis that it was not negotiable, and could not be
transferred to the plaintiff so they became a holder and entitled to sue. The bill was a
limited to the drawer and drawee, and the plaintiff could not sue as a holder for value.
See s36 which sets out the rules for negotiation:
(1)
A bill is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder of the bill.
(2)
A bill payable to bearer is negotiated by delivery.
(3)
A bill payable to order is negotiated by the indorsement of the holder
completed by delivery.
(4)
Where the holder of a bill payable to his order transfers it for value
without indorsing it, the transfer gives the transferee such title as the
transferor had in the bill, and the transferee in addition acquires the right
to have the indorsement of the transferor.
(5)
Where any person is under obligation to indorse a bill in a representative
capacity, he may indorse the bill in such terms as to negative personal
liability.
See Jones v Waring & Gillow [1891] 1 QB 435 (HL) per Viscount Cave LC that
transfer to the payee is not a negotiation for the purposes of s36.
37
38
39
40
41
42
Requisites of a valid indorsement
Conditional indorsement
Indorsement in blank and special indorsement
Restrictive indorsement
Negotiation of overdue or dishonoured bill
Negotiation of bill to party already liable thereon
Liabilities
The liabilities of parties are set out in ss21, 36, 58 – 63.
Acceptor
The liability of the acceptor is covered by s59. When the bill is accepted in writing,
s22(2), the acceptor agrees to pay it consistent with the terms of acceptance, s24
(general and qualified acceptance), see s59(1).
The acceptor is thereafter precluded from denying to a holder in due course any of the
following things (to avoid payment), s59(2):
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
30
(i)
the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the bill; and
(ii)
in the case of a bill payable to drawer’s order, the then capacity of the
drawer to indorse, but not the genuineness or validity of his indorsement;
and
(iii) in the case of a bill payable to the order of a third person, the existence of
the payee and his then capacity to indorse, but not the genuineness or
validity of his indorsement.
Agent
A person signing in a representative capacity can negative personal liability, s36(5).
An agent needs to ensure he does not assume liability by taking care to qualify his
indorsement: Groupy v Harden (1816) 7 Taunt 159; 129 ER 161, where the agent did
not add words such as ‘sans recours’ which he could have done.
Drawee
Where the funds in the hands of the drawee, s58 provides that the bill does not operate
as an assignment of funds available for the payment of the bill. The drawee of a bill
who does not accept as required by the Act is not liable.
Drawer
The liability of the drawer is set out in s60(1), and the drawer promises that when the
bill is duly presented, the drawer will accept and pay it according to its ‘tenor’. If the
drawer does not pay it, the bill is dishonoured, and the drawer will compensate the
holder or indorser who pays it , provided that the requisite proceedings on dishonour
are duly taken, s60(1)(a).
The drawer can not deny to a holder in due course the existence of the payee and his
then capacity to indorse, s60(1)(b).
Drawer and indorser
The drawer and indorser can at their option, by express stipulation, exclude or limit
their liability to the holder, s21(1) and waive some or all of the holder’s duties, s21(2).
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
31
Indorser
The liability of the indorser is set out in s60(2). When the indorser indorses the bill,
this constitutes a promise that when the bill is duly presented it will be accepted and
paid according to its ‘tenor’, and that if it is dishonoured he will compensate the
holder or a subsequent indorser who is compelled to pay it, provided that the requisite
proceedings on dishonour are duly taken, s60(2)(a).
The indorser can not deny to a holder in due course the genuineness and regularity of
the drawer’s signature and all previous indorsements, s60(2)(b), and can not deny to
the immediate or a subsequent indorsee that the bill was at the time of his indorsement
a valid and subsisting bill, and that he had then a good title to it, s60(2)(c).
Stranger
A stranger who signs the bill is liable as an indorser, s61.
Transferor by delivery and transferee
A Transferor by delivery (who is defined as the holder payable to bearer who
negotiates it but does not indorse it) is not liable on the bill, s63(1), (2).
However, a transferor by delivery who negotiates a bill warrants to his immediate
transferee (being a holder for value) that the bill is what it purports to be, that he has a
right to transfer it, and that at the time of transfer he is not aware of any fact which
renders it valueless, s63(3).
Discharge of bill
A bill of exchange can be discharged in the circumstances set out in ss64 to 69.
1
Payment in due course, s64
A bill is discharged by payment in due course by or on behalf of the drawee or
acceptor. Payment in due course means payment made at or after maturity of the bill
to the holder thereof in good faith and without notice that his title to the bill is
defective, s64(1).
Where an accommodation bill is paid in due course by the party accommodated, the
bill is discharged, s64(3).
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
32
When a bill is paid by the drawer or an indorser it is not discharged (subject to s64);
but:
(a) where a bill payable to, or to the order of, a third party is paid by the
drawer, the drawer may enforce payment thereof against the acceptor, but
may not re-issue the bill;
(b) where a bill is paid by an indorser, or where a bill payable to drawer’s
order is paid by the drawer, the party paying it is remitted to his former
rights as regards the acceptor or antecedent parties, and he may, if he
thinks fit, strike out his own and subsequent indorsements, and again
negotiate the bill.
In Saffron v Societe Miniere Cafrika (1954) 100 CLR 231 there was a contract for
sale where payment was to be by letter of credit, and the goods were delivered to the
buyer, but the letter of credit expired before payment against it. The seller
commenced proceedings to recover the price and was met with a denial of liability by
the buyer on the basis that the letter of credit was the exclusive source of payment.
The High Court of Australia held that the stipulation for payment by letter of credit
did not go beyond requiring the establishment of such a letter as the primary but not
the exclusive source of payment, and accordingly, the seller could sue for the price.
2
Banker paying demand draft where indorsement forged, s65
When the bill is payable to order on demand and drawn on a banker, who pays it in
good faith and in the ordinary course of business, the banker does not need to make
any inquiry and the banker is deemed to have paid the bill in due course, although an
indorsement has been forged or made without authority, s65(1).
3
Acceptor the holder at maturity, s66
When the acceptor of a bill is or becomes the holder of it at or after its maturity, in his
own right, the bill is discharged.
4
Express waiver, s67
When the holder of a bill at or after its maturity absolutely and unconditionally
renounces his rights against the acceptor, the bill is discharged, s67(1). The
renunciation must be in writing, unless the bill is delivered up to the acceptor, s67(2).
The liabilities of any party to a bill may be renounced by the holder under s67(1) and
(2) before, at, or after its maturity. But the rights of a holder in due course without
notice of the renunciation are not affected, s67(3).
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
5
33
Cancellation, s68
A bill is discharged by:
1
cancellation marked on it by the holder or his agent, s68(1);
2
intentional cancellation of the signature of any party liable on the bill by
the holder or his agent. In such case any indorser, who would have had a
right of recourse against the party whose signature is cancelled, is also
discharged, s68(2).
This does not include a cancellation made unintentionally, by mistake, or without the
authority of the holder as the cancellation is inoperative. But where a bill or any
signature appears to have been cancelled, the burden of proof lies on the party who
alleges that the cancellation was made unintentionally, by mistake, or without
authority, s68(3).
6
Alteration of bill, s69
Material alteration of a bill or acceptance without the assent of all parties liable on the
bill results in the bill being avoided except as against a party who has himself made,
authorized, or assented to the alteration, and subsequent indorsers, s69(1):
Provided that where a bill has been materially altered, but the alteration is not
apparent, and the bill is in the hands of a holder in due course, such holder may
avail himself of the bill as if it had not been altered, and may enforce payment of
it according to its original tenor.
S69(2) defines material alterations as:
any alteration of the date, the sum payable, the time of payment, the place of
payment, and, where a bill has been accepted generally, the addition of a place
of payment without the acceptor’s assent.
The Automobile Finance Company of Australia Limited v Law [1933] HCA 52;
(1933) 49 CLR 1 where the alteration was on a note to add place of payment.
Lost instruments
Lost instruments are dealt with in ss74 and 75.
S74(1) provides for replacement of a lost or destroyed bill (which was not overdue) to
the ‘former holder’ who was the holder at the time of loss or destruction by a written
request to the drawer of the original bill. S75(2) to (12) sets out what must be done by
various parties.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
34
S75 provides for court proceedings where the bill is lost.
Bill in a set
S76 sets out the rules where the bill is in a set consisting of numbered parts.
Conflict of laws
S77 sets out rules for the determination of the rights, duties, and liabilities of the
parties where a bill drawn in one country is negotiated, accepted, or payable in
another:
1
The validity of the form of a bill is determined by the law of the place of
issue, and the validity of the supervening contracts, such as acceptance, or
indorsement, or acceptance supra protest, is determined by the law of the
place where such contract was made subject to s77.
2
Where a bill is issued out of Australia
(i) it is not invalid by reason only that it is not stamped in accordance
with the law of the place of issue;
(ii) conforms in form to the law of Australia, it may for the purpose of
enforcing payment, be treated as valid as between all persons who
negotiate, hold, or become parties to it in Australia.
3
The interpretation of the drawing, indorsement, acceptance, or acceptance
supra protest of a bill, is determined by the law of the place where the
contract is made. Provided that, where an inland bill is indorsed in a
foreign country, the indorsement is interpreted according to the law of
Australia in relation to the payer;
4
The duties of the holder concerning presentment for acceptance or
payment, and the necessity for or sufficiency of a protest or notice of
dishonour, or otherwise, are determined by the law of the place where the
act is done or the bill is dishonoured;
5
Where a bill is drawn out of but payable in Australia and the sum payable
is not expressed in the currency of Australia, if there is no express
stipulation, the amount is calculated according to the rate of exchange for
sight drafts at the place of payment on the day the bill is payable.
6
Where a bill is drawn in one country and is payable in another, the due
date thereof is determined according to the law of the place where it is
payable.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
35
See Banco Atlantico v British Bank of the Middle East [1990] 2 Lloyd’s Rep 504.
S77A diminishes the effect of non-compliance with stamp laws where a bill issued in
Australia is presented for acceptance, accepted, or payable, outside Australia by
stating that it is not invalid by reason only that it is not stamped, or is not properly
stamped, in accordance with any law for the time being in force requiring the bill to
be stamped, and any such bill which is unstamped or is not properly stamped may be
received in evidence on payment of the proper duty and penalty (if any).
Other requisites for a valid bill of exchange
Good faith, ss35(2), 96
Good faith is a requirement for the validity of a bill of exchange, though it is
presumed prima facie in favour of a holder in due course, s35(2), except in an action
on a bill, it is admitted or proved that the acceptance, issue, or subsequent negotiation
of the bill is affected with fraud, duress, or force and fear, or illegality. Then the
burden of proof shifts unless and until the holder proves that, subsequent to the
alleged fraud or illegality, value has in good faith been given for the bill.
The Bills of Exchange Act provides that a thing is deemed to be done in good faith
where it is in fact done honestly irrespective of any negligence, s96.
Signature, ss28 – 31, 35(1), 91, 97
A person is not liable as drawer, indorser or acceptor of a bill of exchange until it is
signed by that person, ss28 and 91.
Signature is not defined in the Bills of Exchange Act, nor what constitutes a valid
signature, and there has been some dispute about the validity of a mechanically
applied signature or a rubber stamp (other than a company seal, s97(2)): Lazarus
Estates Ltd v Beasley [1956] 1 QB 702, Lord Denning.
A requirement for the validity of a bill of exchange is that it must be signed by the
drawer, usually in the bottom right hand corner, although it can be written anywhere.
Once the drawer’s signature appears on the bill, the bill is complete and regular for a
holder in due course: s34(1).
The signature of the acceptor and the name of the drawee as written on the bill by the
drawer should be the same.
S28(1) provides that a person is not liable as drawer, indorser or acceptor of a bill if
he has not signed it as such, and where a person signs a bill in a trade name or an
assumed name, he is liable on the bill as if he had signed it in his own name, s28(2).
Where the bill is signed with the name of a firm that signature is the equivalent of the
names of all the partners, s28(3).
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
36
S29 is concerned with forged or unauthorized signatures, and provides that such a
signature is wholly inoperative, and there are no rights to retain the bill, give a
discharge or enforce payment can be so acquired, unless the party against whom it is
sought to retain or enforce payment of the bill is precluded from setting up the forgery
or want of authority. However, a party can ratify an unauthorized signature which is
not a forgery.
A person who signs a bill as an agent or in representative capacity, as drawer,
indorser, or acceptor, and adds words to his signature, indicating that he signs for or
on behalf of a principal, or in a representative character, is not personally liable, but
the mere addition to his signature of words describing him as an agent, or as filling a
representative character, does not exempt him from personal liability, s31(1): see
Landes v Marcus (1909) 25 TLR 478 where two directors of a limited company drew
a cheque on behalf of the company which had the name of the company on it, they
signed the cheque adding the word ‘director’, but this was insufficient to avoid
liability under s31. To protect the utility of bills of exchange, the rule in s31(2) for
determining whether a signature on a bill is that of the principal or that of the agent,
the construction most favourable to the validity of the instrument is adopted.
An agent can become personally liable to a third party on drawing, indorsing or
accepting a bill of exchange unless he signs the name of his principal or expressly
states the capacity in which he signs: Slingsby v District Bank [1932] 1 KB 544 per
Scrutton LJ at 547, and he signs in that character; and by s64(1)(UK) s69(1)(Cth) an
instrument which had been materially altered by a third party fraud was only a
worthless piece of paper: Smith v Lloyds TSB Group plc [2001] QB 541.
By s35(1), every party whose signature appears on a bill is prima facie deemed to
have become a party thereto for value.
An instrument can be signed by the person or another by his authority, s97(1), and by
a corporation under a seal but it is not necessary for the seal to be affixed, s97(2).
Procuration signature
S30 provides for bills signed by a procuration or power of attorney. There is
uncertainty whether the section applies to lesser forms of representative signature
such as ‘for’, ‘for and on behalf of’ and ‘for account of’: see Byles on Bills of
Exchange 7-08. A procuration signature operates as notice that the agent has limited
authority to sign, and the principal is only bound by such signature if the agent was
acting within the actual limits of his authority.
Electronic signature
There is no provision in the Bills of Exchange Act for electronic signature.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
37
Defences
Apart from certain statutory defences, a debtor cannot set up a counter claim, set-off,
or cross-demand against a claim on a bill of exchange: See John Shearer Ltd and Anor
v Ghel Company (1995) 57 FCR 300; Cebora SNC v SIP (Industrial Products) Ltd
[1976] 1 Lloyd's Rep 271; Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH
[1977] 1 Lloyd’s Rep 463 (HL), [1977] 1 WLR 713, [1977] 2 All ER 463; Mobile Oil
Australia Ltd v Caulfield Tyre Service Pty Ltd [1984] VR 440.
In Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH (see Lord Wilberforce at
720; 469) it was held to be clear law that unliquidated cross-claims cannot be relied
upon by way of extinguishing set-off against a claim on a bill of exchange.
See Warwick v Nairn (1855) 10 Exch 762 where Pollock CB remarked:
The payment by a bill of exchange is to be taken as the payment of so much
cash; the defendant ought to satisfy the bill and proceed upon the remedy for the
breach of warranty.
And in Anglo-Italian Bank v Davies (1878) 38 LT 197 per Jessel MR at 199:
I must say, speaking for myself that I should hesitate long before I allowed a
defendant in an action on a bill of exchange to set up a case for damages by
reason of the breach by the plaintiff of some other contract or the commission of
some tort.
James Lamont & Co Ltd v Hyland Limited [1950] 1 KB 585. As between the
immediate parties, a partial failure of consideration may be relied upon as a pro tanto
defence, but only when the amount involved is ascertained and liquidated.
Agra and Masterman's Bank Ltd v Leighton (1866) LR 2 Exch 46; James Lamont &
Co Ltd v Hyland Ltd; Brown Shipley and Co Ltd v Alicia Hosiery Ltd [1966] 1
Lloyd's Rep 668. The amount claimed for the machines was neither ascertained nor
liquidated, and the claim in respect of the mismanagement is one for a wholly
unrelated tort, so that there would seem to be no basis for denying the Appellant's
claim that, as regards the bills, there was no dispute.
Viscount Dilhorne at 726 expressed similar views:
.....the only possible Defence (which is not relied upon by the Respondents)
could be that their acceptance had been procured by fraud, duress or for a
consideration which had failed and because the damages claimed in the
Arbitration are unliquidated damages and such damages cannot be set off
against a claim on the bills of exchange; James Lamont & Co Ltd v Hyland
Ltd.
Similar views were expressed in Sibora SNC v SIP (Industrial Products) Ltd (Opcit
per Sachs L J at 278-279) concerning the need for certainty in the Law Merchant:
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
38
Any erosion of the certainties of the Application by our Courts of the Law
Merchant relating to bills of exchange is likely to work to the detriment of this
country, which depends on International Trade to a degree that needs no
emphasis. For some generations one of those certainties has been that the
bona fide holder for value of a bill of exchange is entitled, save in truly
exceptional circumstances, on it's maturity to have treated as cash, so that in
an action upon it the Court will refuse to regard either as a Defence or as
grounds for a stay of execution any set-off, legal or equitable, or any counter
claim, whether arising on the particular transaction upon which the bills of
exchange came into existence, or, a fortiori, arising in any other way. This
rule of practice is thus, in effect, pay upon on the bill of exchange first and
pursue claims later.
In the same case, it was also said by Stephenson L J at 278:
Bills of exchange are treated as cash, and unless are exceptional
circumstances where there is an action between the immediate parties to a bill
of exchange Judgment will not be held up by virtue of a counter claim by the
Defendant, and execution will not be stayed.
In John Shearer Ltd per O'Loughlin J at 307 the decisions referred to above were
noted as having been approved in Buying Systems (Aust) Pty Ltd v Tien Mah Litho
Printing Co (Pte) Ltd (1986) 5 NSWLR 317 per Cohen J at 327-328:
A stay of judgment on a bill of exchange pending the hearing of a counterclaim has invariably been refused.
and citing Novar (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH per Lord Russell at
732:
......It is in my opinion well established that a claim for unliquidated damages
under a contract for sale is under a bill of exchange accepted by the
purchaser; nor is it available as a set-off or counter-claim. This is a deep
rooted concept of English commercial law.
In Buying Systems (Aust) Pty Ltd v Tien Mah Litho Printing Co (Pte) Ltd per Cohen
J at 328:
This referred to a counter-claim based on the contract under which the bill of
exchange was payment. It would apply all the more to a claim arising
independently of that transaction. If the defendant had obtained judgment for
the amount of the bills, the plaintiff would not have been able to obtain a stay
of execution pending the hearing of its counter-claim. It is in effect seeking
execution by the proposed proceedings to wind up the plaintiff. On the same
principles, it seems that the Court should not stay those proceedings until a
claim as to an amount forming part of the debt has been litigated. The proper
course for the plaintiff, in the words of Sir Eric Sachs, is to pay up first and
pursue its claims later; see Re Julius Harper (at 224).
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
39
Damages
The measure of damages against the parties to a dishonoured bill are set out in s62.
The damages are liquidated.
Each of the following parties:
1
The holder can recover from any party liable on the bill, s62(a);
2
The drawer who has been compelled to pay the bill may recover from the
acceptor, s62(a);
3
An indorser who has been compelled to pay the bill may recover from the
acceptor or from the drawer, or from a prior indorser, s62(a), can recover the
following amounts:
(i) the amount of the bill;
(ii) interest thereon from the time of presentment for payment if the bill
is payable on demand, and from the maturity of the bill in any other
case; and
(iii) the expenses of noting, or, when protest is necessary, and the protest
has been extended, the expenses of protest.
Where the bill is dishonoured abroad, in lieu of the damages in s62(a)(i) to (iii) above:
1
the holder may recover from the drawer or an indorser;
2
the drawer or an indorser who has been compelled to pay the bill may recover
from any party liable to him;
the amount of the re-exchange with interest until the time of payment, s62(b).
Interest is also payable as a discretion, s62(c), though it is likely to be awarded at the
rate allowed by the Court rules, and if the bill is expressed to be payable with interest
at a given rate, that rate can be awarded as damage.
Traps for inexperienced players
Arbitration
With the rise of alternative dispute resolution procedures comes the popularity of
arbitration, especially as arbitration is regarded as a means of speedy resolution.
However, an instrument which contains an arbitration clause is not a valid bill of
exchange: Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713
per Lord Wilberforce at 716.
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
40
Nomination of a particular fund
An order to pay out of a particular fund is not unconditional, s8(3). But this does not
exclude an indication of a particular fund out of which the drawee is to be reimbursed,
or a particular account to be debited, s8(3)(a), such as a direction to charge the bill to
specified goods: Guaranty Trust Co of New York v Hannay & Co. [1918] 2 KB 623
at 635 (against 100 bails of cotton. The bill of exchange was fraudulent as the cotton
had not been shipped. The plaintiffs did not by presenting the bill for acceptance,
represent or warrant that the bill was genuine, and the defendants were not entitled to
receiver the money they paid to the plaintiffs; Commonwealth Bank of Australia v
Rosenhain & Co [1922] VLR 155 and on appeal Rosenhain & Co v Commonwealth
Bank of Australia (1922) 31 CLR 46; or payment on account of monies advanced:
Peacocke & Co v Williams (1909) 28 NZLR 354.
Comparative Table
Bills of Exchange Act 1909 (Cth) and Bills of Exchange Act 1882 (UK)
Aust UK
1909 1882
1
2
3
4
5
6
7
1
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
2
-
Subject
PART I-PRELIMINARY
Short title
Commencement
Interpretation of terms
Application of bankruptcy and common law
Application of Act
Application of State Laws
PART 11 – BILLS OF EXCHANGE
Division 1 – Form and interpretation
Bill of exchange defined
Inland and foreign bills
Effect where different parties to bill are the same person
Address to drawee
Certainty required as to payee
What bills are negotiable
Sum payable
Bill payable on demand
Bill payable at a future time
Omission of date in bill payable after date
Ante-dating and post-dating
Computation of time of payment
Case of need
Optional stipulation by drawer or indorser
Definition and requisites of acceptance
Time for acceptance
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
24
25
26
19
20
21
27
28
29
30
31
22
23
24
25
26
32
33
34
35
27
28
29
30
36
37
38
39
40
41
42
43
31
32
33
34
35
36
37
38
44
45
46
39
40
41
47
48
49
50
51
52
53
54
55
56
57
42
43
44
45
46
47
48
49
50
51
52
58
59
60
61
62
63
53
54
55
56
57
58
64
65
66
59
60
61
General and qualified acceptances
Inchoate instruments
Delivery
Division 2 – Capacity and authority of parties
Capacity of parties
Signature essential to liability
Forged or unauthorised signature
Procuration signatures
Person signing as agent or in representative capacity
Division 3 – The consideration for a bill
Value and holder for value
Accommodation bill or party
Holder in due course
Presumption of value and good faith
Division 4 – Negotiation of bills
Negotiation of bill
Requisites of a valid indorsement
Conditional indorsement
Indorsement in blank and special indorsement
Restrictive indorsement
Negotiation of overdue or dishonoured bill
Negotiation of bill to party already liable thereon
Rights of holder
Division 5 – General duties of the holder
When presentment for acceptance is necessary
Time for presenting bill payable after sight
Rules as to presentment for acceptance and excuses for nonpresentment
Non-acceptance
Dishonour by non-acceptance and its consequences
Duties as to qualified acceptances
Rules as to presentment for payment
Excuses for delay or non-presentment for payment
Dishonour by non-payment
Notice of dishonour and effect of non-notice
Rules as to notice of dishonour
Excuses for non-notice and delay
Noting or protest of bill
Duties of holder as regards drawee or acceptor
Division 6 - Liabilities of Parties
Funds in hands of drawee
Liability of acceptor
Liability of drawer or indorser
Stranger signing bill liable as indorser
Measure of damages against parties to dishonoured bill
Transferor by delivery and transferee
Division 7--Discharge of bill
Payment in due course
Banker paying demand draft whereon indorsement is forged
Acceptor the holder at maturity
41
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
67
68
69
62
63
64
70
71
72
73
65
66
67
68
74
75
69
70
76
71
77
77A
72
78
79
73
74
74A
74B
74C
80
81
75
82
83
84
85
86
87
88
88A
76
77
78
79
80
81
81A
82
-
88B
-
88C
-
88D
88E
-
89
90
83
84
Express waiver
Cancellation
Alteration of bill
Division 8--Acceptance and payment for honour
Acceptance for honour supra protest
Liability of acceptor for honour
Presentment to acceptor for honour
Payment for honour supra protest
Division 9--Lost instruments
Replacement of lost or destroyed bill
Holder’s right to duplicate of lost bill
Action on lost bill
Division 10--Bill in a set
Rules as to sets
Division 11--Conflict of laws
Rules where laws conflict
Effect of non-compliance with stamp laws in case of certain bills
of exchange
PART III – CHEQUES ON A BANKER
Division 1- Cheques generally
Cheque defined
Presentment of cheque for payment
Presentment of cheque for payment: alternative place of
presentment
Presentment of cheque for payment: alternative means of
presentment
Cheques presented for payment under section 74B: disapplication
of section 52(4)
Rights of banker as regards stale cheques
Revocation of banker's authority
Division 2- Crossed cheques
General and special crossings defined
Crossing by drawer or after issue
Crossing a material part of cheque
Duties of banker as to crossed cheques
Protection to banker and drawer where cheque is crossed
Effect of crossing on holder
Non-transferable cheques
Cheques drawn by a bank on itself
Division 3- Other provisions relating to cheques
Protection of bankers paying unindorsed or irregularly indorsed
cheques or drafts
Payment of unendorsed cheque or draft as evidence of receipt by
payee
Protection of bankers collecting payment of cheques etc
Rights of banker collecting cheque not indorsed by payee
PART IV- PROMISSORY NOTES
Promissory note defined
Delivery necessary
42
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
91
92
93
94
95
85
86
87
88
89
96
97
98
99
100
101
-
90
91
92
93
94
-
1st
2nd
-
95
96
97
98
99
100
43
Joint and several notes
Note payable on demand
Presentment of note for payment
Liability of maker
Application of Part II to notes
PART V—SUPPLEMENTARY
Good faith
Signature
Computation of time
When noting equivalent to protest
Protest when notary not accessible
Dividend warrants
Dividend warrants may be crossed
Savings
Saving of summary diligence in Scotland
Construction with other acts
Parole evidence allowed in certain judicial proceedings in
Scotland
SCHEDULES
Form of Protest which may be used when the services of a Notary
cannot be obtained
Form of Protest which may be used
Bibliography
ALRC
Australian Institute
of Export
Benjamin
Branch, AE
Buckley, RP
Craigie , D
Elliot, Odgers and Phillips
Greig, DW &
Gunningham NA
ICC
ICC
Jack, Malek & Quest
Purvis, RN &
Legal risk in international transactions, Commonwealth
Report 80, 1996
Export Handbook, 14th Edition, 1991, Chapter 5
Sale of Goods, 4th Edn, Sweet & Maxwell 1992
Import/Export Documentation, Chapman and Hall,
Chapter 5
Potential Pitfalls with Letters of Credit, (1996) 70 ALJ
217
‘The Collection of Bills in International Trade’, Current
Problems of International Trade Financing, Malaya Law
Review, Butterworths, Singapore 1983, p 124
Byers on Bills of Exchange, 27th Edition, Sweet &
Maxwell 2002
Commercial Law, 3rd Edition, Butterworths 1988, Ch 3
– Negotiable Instruments
"Documentary Credits: UCP 500 and UCP 400
compared - An Article by Article Analysis"
Uniform Customs and Practice for Documentary
Credits, ICC Publishing SA (UCP 500)
Documentary Credits, 2nd Edition, Butterworths 1993
Module 3 International payments (revised 7/7/6)
3.1 Bills of exchange
Darvas, R
Mo, J
Ritchie, J
Sacks, P & Malbon, J
Schmitthoff, CM
Wilde, KCDM (Ed)
44
Commercial Letters of Credit, Butterworths 1975
International Commercial Law, 3rd Edition, LexisNexis
Butterworths 2003
The Merchants Guide European Edition, 5th Edition, P
& O Containers, London 1991
Australian Export Manual, Longman Professional
(1992) Chapter 3
The Law & Practice of International Trade, 9th Edn,
Stevens & Sons, London 1990, Part 3 – Finance of
Exports, Ch 22
International Transactions, Law Book Co 1993