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13 Cards in this Set

  • Front
  • Back

Bills of Exchange

Bills of Exchange Act 1882 s.3

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 a bearer

Bills of Exchange

Order bill - payable to named payee

Bearer bill - payable to bearer

Autonomous - independent to the underlying contractual payment obligation - sits as separate entity - breach of contract does not mean BOE can be revoked as they are no linked unless stated otherwise - MYclub's standard terms say they can countermand BOE if they reject delivery of the goods

A negotiable instrument (negotiability: any holder who takes in good faith and for value acquires good title) - full and legal title is transferred by mere delivery - free from any defects in any transferor's title

How Bills of Exchange Work

An order by the drawer of the bill to the drawee (acceptor if accepts the bill - promises to honour it) to pay a sum of money to payee (can be unnamed - payable to bearer, or named - drawer or 3rd party)

Sum ordered to be paid may be payable immediately or at a future date

Payee may enforce the bill himself by presenting it for payment in accordance with its terms, or may sell (discount) it to third party - transferring it in return for an immediate cash payment - transferee will then enforce it in due course/in turn transfer it

Transfer of Bills

Bearer bills - by simple delivery (transferring physical possession of the bill)

Order bills - by endorsement (payee signs name) completed by delivery

Parties to a Bill of Exchange

Drawer - draws the bill and signs it - engages that on due presentment the bill shall be accepted and paid according to its tenor - liable if it is dishonoured to compensate the holder or any endorser who is compelled to pay it (s.55(1))

Drawee - person instructed to pay - acceptor if accepts the bill (promises to honour it) - by accepting the bill the party becomes liable - primarily liable for payment on presentation of bill (s.54(1)) - engages that he will pay it according to the tenor of his acceptance

Payee - person to be paid

Holder - person in possession of bill - entitled to enforce bill by presenting it for payment or taking enforcement proceedings if dishonoured - only payment to holder can discharge payer's liability on bill (bearer bill - bearer, order bill - payee)

Endorser - a person who has signed the bill - engages that on due presentment the bill shall be accepted and paid according to its tenor - liable if it is dishonoured to compensate holder/subsequent endorser who is compelled to pay (s.54(2))

Holders of Bills of Exchange

Mere holder - entitled to transfer the bill, insert the date if it has been omitted, present the bill for payment

Holder for value - value has been given for the bill at some time - can enforce the bill even though the person against whom he enforces it received no consideration for his promise to pay - susceptible to defences (e.g. bill obtained by fraud/duress)

Holder in due course (every holder except original payee) - has taken possession before it was overdue/without notice it had previously been dishonoured, given value in good faith for the bill - free from all defences/defects in title of his predecessors in title (Jade International v Robert Nicholas - defendant refused to pay on presentation of BOE due to dispute about quality of goods, having been discounted through multiple banks it was backtracked through the chain until back with plaintiff - held no longer an immediate party as had discounted bill so was entitled to hold bill as holder in due course, and therefore bill stood separate to contractual dispute)

Bills of Exchange Liability

Any person who signs the bill otherwise than as drawer/acceptor incurs the liabilities of an endorser

Liability is joint

Damages of Dishonoured Bills

The amount of the bill

Interest from the time of presentment for payment (if payable on demand) or maturity of bill

Expenses of noting/protest (where necessary)


A bill of exchange drawn on a banker payable on demand

In general the law applicable to BOEs applies equally to cheques - however is supplemented by Cheques Acts 1957 & 1992

Cheques are not accepted by the drawee - the bank on which it is drawn is under no obligation to the payee to honour the cheque - primary liability instead falls on drawer

Cheques - obligation of Drawee Bank

In all cases under obligation to its customer to honour cheques drawn by him so long as their are sufficient funds credited to his account to meet the cheque


Customer countermands payment - notice of countermand must be clear and unambiguous (Westminster Bank v Hilton - customer gave wrong cheque number to be countermanded so bank paid out on cheque - held not negligent as customer gave incorrect details) - notice must be brought to actual knowledge of bank (Curtice v London City and Midland Bank - customer sent countermand notice by telegraph - due to banking error was not processed and cheque was paid out - bank held negligent as customer had given good notice, bringing it to actual knowledge of bank)

Customer dies

Presented with a bankruptcy or winding up petition against the drawer

Cheques - Protection for Banks

Main risk for paying bank is paying without customer's mandate - protected by Bills of Exchange Act 1882 & Cheques Act 1957 s.1 when pay a crossed cheque to a banker, pay a cheque which is not endorsed, pay in good faith and in the ordinary course of business on a cheque with a forged endorsement

Main risk for collecting bank is liability to the true owner when it collects a cheque other than for the true owner - protected by Cheques Act 1957 s.4 when receive payment of a crossed cheque for a customer

However, banks are not protected if they have acted negligently (Marfani v Midland Bank - bank was duped by a customer/false references into clearing a cheque drawn to someone other than said customer - held not liable as had acted without negligence, in accordance with the current practice of bankers, and were therefore protected from liability)

Crossed Cheques

Means cheques are not negotiable - 2 parallel vertical lines across cheque now usually with the words 'Account Payee' - means non-transferable

Since Cheques Act 1992 all cheques are crossed - unless customer requests uncrossed cheques, in which case he bears the ensuing risks

Timings of Cheques

Post-dated cheques are legal - but have no validity until the date on the cheque

Cheques must be presented within a reasonable time for payment