L100 LONDON, _1st January_ 1901.
Three months after date pay to the order of Mr J. Jones the sum
of one hundred pounds for value received.
BROWN & Co.
To Messrs. Smith & Sons, Liverpool.
The scope of the definition given above may be realized by comparing it
with the definition given by Sir John Comyns' _Digest_ in the early part
of the 18th century:--"A bill of exchange is when a man takes money in
one country or city upon exchange, and draws a bill whereby he directs
another person in another country or city to pay so much to A, or order,
for value received of B, and subscribes it." Comyns' definition
illustrates the original theory of a bill of exchange. A bill in its
origin was a device to avoid the transmission of cash from place to
place to settle trade debts. Now a bill of exchange is a substitute for
money. It is immaterial whether it is payable in the place where it is
drawn or not. It is immaterial whether it is stated to be given for
value received or not, for the law itself raises a presumption that it
was given for value. But though bills are a substitute for cash payment,
and though they constitute the commercial currency of the country, they
must not be confounded with money. No man is bound to take a bill in
payment of debt unless he has agreed to do so. If he does take a bill,
the instrument ordinarily operates as conditional, and not as absolute
payment. If the bill is dishonoured the debt revives. Under the laws of
some continental countries, a creditor, as such, is entitled to draw on
his debtor for the amount of his debt, but in England the obligation to
accept or pay a bill rests solely on actual agreement. A bill of
exchange must be an unconditional order to pay. If an instrument is made
payable on a contingency, or out of a particular fund, so that its
payment is dependent on the continued existence of that fund, it is
invalid as a bill, though it may, of course, avail as an agreement or
equitable assignment. In Scotland it has long been the law that a bill
may operate as an assignment of funds in the hands of the drawee, and Sec.
53 of the act preserves this rule.
_Stamp._--Bills of exchange must be stamped, but the act of 1882 does
not regulate the stamp. It merely saves the operation of the stamp laws,
which necessarily vary from time to time according to the fluctuating
needs and policy of the exchequer. Under the Stamp Act 1891, bills
payable on demand are subject to a fixed stamp duty of one penny, and by
the Finance Act 1899, a similar privilege is extended to bills expressed
to be payable not more than three days after sight or date. The stamp
may be impressed or adhesive. All other bills are liable to an _ad
valorem_ duty. Inland bills must be drawn on stamped paper, but foreign
bills, of course, can be stamped with adhesive stamps. As a matter of
policy, English law does not concern itself with foreign revenue laws.
For English purposes, therefore, it is immaterial whether a bill drawn
abroad is stamped in accordance with the law of its place of origin or
not. On arrival in England it has to conform to the English stamp laws.
_Maturity._--A bill of exchange is payable on demand when it is
expressed to be payable on demand, or at sight, or on presentation or
when notice for payment is expressed. In calculating the maturity of
bills payable at a future time, three days, called days of grace, must
be added to the nominal due date of the bill. For instance, if a bill
payable one month after sight is accepted on the 1st of January, it is
really payable on the 4th of February, and not on the 1st of February as
its tenor indicates. On the continent generally days of grace have been
abolished as anomalous and misleading. Their abolition has been proposed
in England, but it has been opposed on the ground that it would curtail
the credit of small traders who are accustomed to bills drawn at certain
fixed periods of currency. When the last day of grace is a non-business
day some complicated rules come into play (Sec. 14). Speaking generally,
when the last day of grace falls on Sunday or a common law holiday the
bill is payable on the preceding day, but when it falls on a bank
holiday the bill is payable on the succeeding day. Complications arise
when Sunday is preceded by a bank holiday; and, to add to the confusion,
Christmas day is a bank holiday in Scotland, but a common law holiday in
England. When the code was in committee an attempt was made to remove
these anomalies, but it was successfully resisted by the bankers on
alleged grounds of practical convenience.
_Acceptance._--By the acceptance of a bill the drawee becomes the
principal debtor on the instrument and the party primarily liable to pay
it. The acceptor of a bill "by accepting it engages that he will pay it
according to the tenor of his acceptance," and is precluded from denying
the drawer's right to draw or the genuineness of his signature (Sec. 54).
The acceptance may be either general or qualified. As a qualified
acceptance is so far a disregard of the drawer's order, the holder is
not obliged to take it; and if he chooses to take it he must give notice
to antecedent parties, acting at his own risk if they dissent (Sec.Sec. 19 and
44). The drawer and indorsers of a bill are in the nature of sureties.
They engage that the bill shall be duly accepted and paid according to
its tenor, and that if it is dishonoured by non-acceptance or
non-payment, as the case may be, they will compensate the holder
provided that the requisite proceedings on dishonour are duly taken. Any
indorser who is compelled to pay the bill has the like remedy as the
holder against any antecedent party (Sec. 55). A person who is not the
holder of a bill, but who backs it with his signature, thereby incurs
the liability of an indorser to a holder in due course (Sec. 56). An
indorser may by express term either restrict or charge his ordinary
liability as stated above. Prima facie every signature to a bill is
presumed to have been given for valuable consideration. But sometimes
this is not the case. For friendship, or other reasons, a man may be
willing to lend his name and credit to another in a bill transaction.
Hence arise what are called _accommodation bills_. Ordinarily the
acceptor gives his acceptance to accommodate the drawer. But
occasionally both drawer and acceptor sign to accommodate the payee, or
even a person who is not a party to the bill at all. The criterion of an
accommodation bill is the fact that the principal debtor according to
the instrument has lent his name and is in substance a surety for some
one else. The holder for value of an accommodation bill may enforce it
exactly as if it was an ordinary bill, for that is the presumable
intention of the parties. But if the bill is dishonoured the law takes
cognizance of the true relations of the parties, and many of the rules
relating to principal and surety come into play. Suppose a bill is
accepted for the accommodation of the drawer. It is the drawer's duty to
provide the acceptor with funds to meet the bill at maturity. If he
fails to do so, he cannot rely on the defence that the bill was not duly
presented for payment or that he did not receive due notice of
dishonour. If the holder, with notice of the real state of the facts,
agrees to give time to the drawer to pay, he may thereby discharge the
acceptor.
_Holder in due Course._--The holder of a bill has special rights and
special duties. He is the mercantile owner of the bill, but in order to
establish his ownership he must show a mercantile title. The bill must
be negotiated to him, that is to say, it must be transferred to him
according to the forms prescribed by mercantile law. If the bill is
payable to order, he must not only get possession of the bill, but he
must also obtain the indorsement of the previous holder. If the bill is
payable to bearer it is transferable by mere delivery. 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. If a man lawfully obtains
possession of a bill payable to order without the necessary indorsement,
he may obtain some common law rights in respect of it, but he is not
the mercantile owner, and he is not technically the holder or bearer.
But to get the full advantages of mercantile ownership the holder must
be a "holder in due course"--that is to say, he must satisfy three
business conditions. First, he must have given value, or claim through
some holder who has given value. Secondly, when he takes the bill, it
must be regular on the face of it. In particular, the bill must not be
overdue or known to be dishonoured. An overdue bill, or a bill which has
been dishonoured, is still negotiable, but in a restricted sense. The
transferee cannot acquire a better title than the party from whom he
took it had (Sec. 36). Thirdly, he must take the bill honestly and without
notice of any defect in the title of the transferor,--as, for instance,
that the bill or acceptance had been obtained by fraud, or threats or
for an illegal consideration. If he satisfies these conditions he
obtains an indefeasible title, and can enforce the bill against all
parties thereto. The act substitutes the expression "holder in due
course" for the somewhat cumbrous older expression "bona fide holder for
value without notice." The statutory term has the advantage of being
positive instead of negative. The French equivalent "tiers porteur de
bonne foi" is expressive. Forgery, of course, stands on a different
footing from a mere defect of title. A forged signature, as a general
rule, is a nullity. A person who claims through a forged signature has
no title himself, and cannot give a title to any one else (Sec. 24). Two
exceptions to this general rule require to be noted. First, a banker who
in the ordinary course of business pays a demand draft held under a
forged indorsement is protected (Sec. 60). Secondly, if a bill be issued
with material blanks in it, any person in possession of it has prima
facie authority to fill them up, and if the instrument when complete
gets into the hands of a holder in due course the presumption becomes
absolute. As between the immediate parties the transaction may amount to
forgery, but the holder in due course is protected (Sec. 20).
_Dishonour._--The holder of a bill has special duties which he must
fulfil in order to preserve his rights against the drawers and
indorsers. They are not absolute duties; they are duties to use
reasonable diligence. When a bill is payable after sight, presentment
for acceptance is necessary in order to fix the maturity of the bill.
Accordingly the bill must be presented for acceptance within a
reasonable time. When a bill is payable on demand it must be presented
for payment within a reasonable time. When it is payable at a future
time it must be presented on the day that it is due. If the bill is
dishonoured the holder must notify promptly the fact of dishonour to any
drawer and indorser he wishes to charge. If, for example, the holder
only gives notice of dishonour to the last indorser, he could not sue
the drawer unless the last indorser or some other party liable has duly
sent notice to the drawer. When a foreign bill is dishonoured the holder
must cause it to be protested by a notary public. The bill must be noted
for protest on the day of its dishonour. If this be duly done, the
protest, i.e. the formal notarial certificate attesting the dishonour,
can be drawn up at any time as of the date of the noting. A dishonoured
inland bill may be noted, and the holder can recover the expenses of
noting, but no legal consequences attach thereto. In practice, however,
noting is usually accepted as showing that a bill has been duly
presented and has been dishonoured. Sometimes the drawer or indorser has
reason to expect that the bill may be dishonoured by the drawee. In that
case he may insert the name of a "referee in case of need." But whether
he does so or not, when a bill has been duly noted for protest, any
person may, with the consent of the holder, intervene for the honour of
any party liable on the bill. If the bill has been dishonoured by
non-acceptance it may be "accepted for honour _supra protest_." If it
has been dishonoured by non-payment it may be paid _supra protest_. When
a bill is thus paid and the proper formalities are complied with, the
person who pays becomes invested with the rights and duties of the
holder so far as regards the party for whose honour he has paid the
bill, and all parties antecedent to him (Sec.Sec. 65 to 68).
_Discharge._--Normally a bill is discharged by payment in due course,
that is to say, by payment by the drawee or acceptor to the holder at or
after maturity. But it may also be discharged in other ways, as for
example by coincidence of right and liability (Sec. 61), voluntary
renunciation (Sec. 62), cancellation (Sec. 63), or material alteration (Sec. 64).
_Conflict of Laws._--A bill of exchange is the most cosmopolitan of all
contracts. It may be drawn in one country, payable in another, and
indorsed on its journey to its destination in two or three more. The
laws of all these countries may differ. Provision for this conflict of
laws is made by Sec. 72, which lays down rules for determining by what law
the rights and duties of the various parties are to be measured and
regulated. Speaking broadly, these rules follow the maxim _Locus regit
actum_. A man must be expected to know and follow the law of the place
where he conducts his business, but no man can be expected to know the
laws of every country through which a bill may travel. For safety of
transmission from country to country bills are often made out in sets.
The set usually consists of three counterparts, each part being numbered
and containing a reference to the other parts. The whole set then
constitutes one bill, and the drawee must be careful only to accept one
part, otherwise if different accepted parts get into the hands of
different holders, he may be liable to pay the bill twice (Sec. 71).
Foreign bills circulating through different countries have given rise to
many intricate questions of law. But the subject is perhaps one of
diminishing importance, as in many trades the system of "cable
transfers" is superseding the use of bills of exchange.
Cheques.
A cheque "is a bill of exchange drawn on a banker payable on demand" (Sec.
73). For the most part the rules of law applicable to bills payable on
demand apply in their entirety to cheques. But there are certain
peculiar rules relating to the latter which arise from the fact that the
relationship of banker and customer subsists between the drawer and
drawee of a cheque. For example, when a person has an account at a bank
he is, as an inference of law, entitled to draw on it by means of
cheques. A right to overdraw, can, of course, only arise from agreement.
The drawer of a cheque is not absolutely discharged by the holder's
omission to present it for payment within a reasonable time. He is only
discharged to the extent of any actual damage he may have suffered
through the delay (Sec. 74). Apart from any question of delay, a banker's
authority to pay his customer's cheques is determined by countermand of
payment or by notice of the customer's death (Sec. 75). Of recent years the
use of cheques has enormously increased, and they have now become the
normal machinery by which all but the smallest debts are discharged. To
guard against fraud, and to facilitate the safe transmission of cheques
by post, a system of crossing has been devised which makes crossed
cheques payable only through certain channels. The first act which gave
legislative recognition to the practice of crossing was the 19 and 20
Vict. c. 95. That act was amended in 1858, and a consolidating and
amending act was passed in 1876. The act of 1876 is now repealed, and
its provisions are re-enacted with slight modifications by Sec.Sec. 76 to 82
of the Bills of Exchange Act 1883. A cheque may be crossed either
"generally" or "specially." A cheque is crossed generally by drawing
across it two parallel lines and writing between them the words "& Co."
When a cheque is crossed generally it cannot be paid over the counter.
It must be presented for payment by a banker. A cheque is crossed
specially by adding the name of the banker, and then it can only be
presented through that particular banker. A cheque, whether crossed
generally or specially, may further be crossed with the words "not
negotiable." A cheque crossed "not negotiable" is still transferable,
but its negotiable quality is restricted. It is put on pretty much the
same footing as an overdue bill. The person who takes it does not get,
and cannot give a better title to it, than that which the person from
whom he took it had. These provisions are supplemented by provisions for
the protection of paying and collecting bankers who act in good faith
and without negligence. Suppose that a cheque payable to bearer, which
is crossed generally and with the words "not negotiable," is stolen.
The thief then gets a tradesman to cash it for him, and the tradesman
gets the cheque paid on presentment through his banker. The banker who
pays and the banker who receives the money for the tradesman are
protected, but the tradesman would be liable to refund the money to the
true owner. Again, assuming payment of the cheque to have been stopped,
the tradesman could not maintain an action against the drawer.
Promissory notes.
A promissory note is defined by section 83 of the act to be an
"unconditional promise in writing made by one person to another, signed
by the maker, engaging 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." A promissory note may be made by two or more
makers, and they may be liable either jointly, or jointly and severally,
according to its tenor (Sec. 85). For the most part, rules of law
applicable to a bill of exchange apply also to a promissory note, but
they require adaptation. A note differs from a bill in this: it is a
direct promise to pay, and not an order to pay. When it issues it bears
on it the engagement of the principal debtor who is primarily liable
thereon. The formula for applying to notes the rules as to bills is that
"the maker of a note shall be deemed to correspond with the acceptor of
a bill, and the first indorser of a note shall be deemed to correspond
with the drawer of a bill payable to drawer's order" (Sec. 89). Rules
relating to presentment for acceptance, acceptance, acceptance _supra_
protest, and bills in a set, have no application to a note. Moreover,
when a foreign note is dishonoured it is not necessary, for English
purposes, to protest it. All promissory notes are, under the Stamp Act
1891, subject to an _ad valorem_ stamp duty. Inland notes must be on
impressed stamp paper. Foreign notes are stamped with adhesive stamps.
For ordinary legal purposes a bank note may be regarded as a promissory
note made by a banker payable to bearer on demand. It is, however,
subject to special stamp regulations. It is not discharged by payment,
but may be re-issued again and again. In the interests of the currency
the issue of bank notes is subject to various statutory restrictions. A
bank, other than the Bank of England, may not issue notes in England
unless it had a lawful note issue in 1844. On the other hand, Bank of
England notes are legal tender except by the bank itself.
Foreign laws.
In fundamental principles there is general agreement between the laws of
all commercial nations regarding negotiable instruments. As Mr Justice
Story, the great American lawyer, says: "The law respecting negotiable
instruments may be truly declared, in the language of Cicero, to be in a
great measure not the law of a single country only, but of the whole
commercial world. _Non erit lex alia Romae, alia Athenis, alia nunc alia
posthac, sed et apud omnes gentes et omni tempore, una eademque lex
obtinebit_" (_Swift_ v. _Tyson_, 16 Peters i). But in matters of detail
each nation has impressed its individuality on its own system. The
English law has been summarized above. Perhaps its special
characteristics may be best brought out by comparing it with the French
code and noting some salient divergences. English law has been developed
gradually by judicial decision founded on trade custom. French law was
codified in the 17th century by the "Ordonnance de 1673." The existing
"Code de Commerce" amplifies but substantially adopts the provisions of
the "Ordonnance." The growth of French law was thus arrested at an early
period of its development. The result is instructive. A reference to
Marius' treatise on bills of exchange, published about 1670, or Beawes'
_Lex Mercatoria_, published about 1740, shows that the law, or rather
the practice, as to bills of exchange was even then fairly well defined.
Comparing the practice of that time with the law as it now stands, it
will be seen that it has been modified in some important respects. For
the most part, where English law differs from French law, the latter is
in strict accordance with the rules laid down by Beawes. The fact is
that, when Beawes wrote, the law or practice of both nations on this
subject was nearly uniform. But English law has gone on growing while
French law has stood still. A bill of exchange in its origin was an
instrument by which a trade debt due in one place was transferred to
another place. This theory French law rigidly keeps in view. In England
bills have developed into a paper currency of perfect flexibility. In
France a bill represents a trade transaction; in England it is merely an
instrument of credit. English law affords full play to the system of
accommodation paper; French law endeavours to stamp it out. A comparison
of some of the main points of difference between English and French law
will show how the two theories work. In England it is no longer
necessary to express on a bill that value has been given for it, for the
law raises a presumption to that effect. In France the nature of the
consideration must be stated, and a false statement of value avoids the
bill in the hands of all parties with notice. In England a bill may be
drawn and payable in the same place. In France the place where a bill is
drawn should be so far distant from the place where it is payable that
there may be a possible rate of exchange between the two. This so-called
rule of _distantia loci_ is said to be disregarded now in practice, but
the code is unaltered. As French lawyers put it, a bill of exchange
necessarily presupposes a contract of exchange. In England since 1765 a
bill may be drawn payable to bearer, though formerly it was otherwise.
In France it must be payable to order; if it were not so it is clear
that the rule requiring the consideration to be truly stated would be a
nullity. In England a bill originally payable to order becomes payable
to bearer when indorsed in blank. In France an indorsement in blank
merely operates as a procuration. An indorsement, to operate as a
negotiation, must be to order, and must state the consideration; in
short, it must conform to the conditions of an original draft. In
England, if a bill is dishonoured by non-acceptance, a right of action
at once accrues to the holder. In France no cause of action arises
unless the bill is again dishonoured at maturity; the holder in the
meantime is only entitled to demand security from the drawer and
indorsers. In England a sharp distinction is drawn between current and
overdue bills. In France no such distinction is drawn. In England no
protest is required in the case of the dishonour of an inland bill,
notice of dishonour being sufficient. In France every dishonoured bill
must be protested. Opinions may differ whether the English or the French
system is better calculated to serve sound commerce and promote a
healthy commercial morality. But an argument in favour of the English
system may be derived from the fact that as the various continental
codes are from time to time revised and re-enacted, they tend to depart
from the French model and to approximate to the English rule. The effect
upon English law of its codification has yet to be proved. A common
objection to codification in England is that it deprives the law of its
elastic character. But when principles are once settled common law has
very little elasticity. On the other hand no code is final. Modern
parliaments legislate very freely, and it is a much simpler task to
alter statute law than to alter common law. Moreover, legislation is
cheaper than litigation. One consequence of the codification of the
English law relating to bills is clear gain. Nearly all the British
colonies have adopted the act, and where countries are so closely
connected as England and her colonies, it is an obvious advantage that
their mercantile transactions should be governed by one and the same law
expressed in the same words.
The ordinary text-books on the law of bills of exchange are constantly
re-edited and brought up to date. The following among others may be
consulted:--Byles, _Bills of Exchange_; Chalmers, _Bills of Exchange_;
Daniel, _Law of Negotiable Instruments_ (United States); Nouguier,
_Des lettres de change et des effets de commerce_ (France); Thorburn,
_Bills of Exchange Act_ 1882 (Scotland); Story, _Bills of Exchange_
(United States); Hodgins, _Bills of Exchange Act_ 1890 (Canada).
(M. D. Ch.)