•
LAW OF FINANCIAL INSTITUTIONS AND SECURITIES
BLO3405
• What is a Bill of Exchange
• Mainly used in International Trade.
• Known as a ‘negotiable instrument.’
• Common example is a cheque
• Legislation
• Bills of Exchange Act 1909
• https://www.legislation.gov.au/Details/C2012C00128
• 8 Bill of exchange defined
• (1) A bill of exchange is an unconditional order in writing, addressed by one person (the
drawer) to another(the drawee), 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 (the payee), or to bearer.
• Concept of Negotiation
• Essential element is that the debt should be easily, cheaply and freely transferable to
another person (holder).
e.g Mei owes a debt of $1,500 to Delta.
Mei writes out and gives Delta a cheque for $1,500. It reads “pay Delta or bearer’).
Delta is now holder and owner of it. Delta could either
- deposit the cheque to its account and wait for the funds to be cleared, OR
• Concept of Negotiation
- transfer (‘negotiate’) this cheque to someone it owed this amount to, for example, to Ellen, who,
if she accepts it, becomes the new holder and owner of the cheque, with the right to deposit the
cheque to her account and collect the $1500 from Mei.
• Why is this possible?.- because the cheque was written to bearer ( though it could also
have been written ‘or order’), allowing the cheque to be passed on to others. Mei would
have an obligation to pay that third party.
• In this way, they can mobilise short term capital.
• Essential features of negotiable instruments
• Transferability: two simple methods of transferring ownership ( such as from Delta to Ellen)
depending on type of cheque:
• Bearer cheque (e.g Pay : delivery, or
• Order cheque: indorsement on back (with signature) plus delivery
, • Ownership: generally, the final holder has right to sue for payment in his or her own name
• Title: generally, owner (final holder) obtains clear title to the instrument, even if an earlier
party lacked title due to theft
contrast this with transfer of stolen goods where the thief is unable to transfer title even to
an innocent buyer. Reason: application of Nemo Dat Rule- ‘You cannot give what you do not
have’.
Must still show that consideration has been given.
Important point that once the first holder has given consideration for a bill, every
subsequent holder is taken to have given consideration.
• Comparison with Transfer of a debt by assignment
• The debt can be transferred from person to person via negotiation.
• Each person who endorses the bill is liable to the holder
• The holder of the bill may sue in their own name:
• 43 Rights of holder
(1) The rights and powers of the holder of a bill are as follows:
(a) He or she may sue on the bill in his or her own name;
• One advantage over assignment is that it is not possible to make a legal assignment of part
only of debt.
• It is not necessary to plead and prove consideration has been given.
• No need to give notice to the original debtor.
• Assignee of a debt must sue in breach of contract if the debt is not paid.
• The holder of a bill of exchange is entitled to summary judgment for the face value of the
instrument.
• Formal Requirements
• Initially developed from custom of merchants and the practice of early trade.
• Modern definition in s.8 Bills of Exchange Act as above. Each element of the definition must
be met.
• Has three parties
• Drawer
• Drawee
• Payee
• Elements of the definition
• Unconditional Order
LAW OF FINANCIAL INSTITUTIONS AND SECURITIES
BLO3405
• What is a Bill of Exchange
• Mainly used in International Trade.
• Known as a ‘negotiable instrument.’
• Common example is a cheque
• Legislation
• Bills of Exchange Act 1909
• https://www.legislation.gov.au/Details/C2012C00128
• 8 Bill of exchange defined
• (1) A bill of exchange is an unconditional order in writing, addressed by one person (the
drawer) to another(the drawee), 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 (the payee), or to bearer.
• Concept of Negotiation
• Essential element is that the debt should be easily, cheaply and freely transferable to
another person (holder).
e.g Mei owes a debt of $1,500 to Delta.
Mei writes out and gives Delta a cheque for $1,500. It reads “pay Delta or bearer’).
Delta is now holder and owner of it. Delta could either
- deposit the cheque to its account and wait for the funds to be cleared, OR
• Concept of Negotiation
- transfer (‘negotiate’) this cheque to someone it owed this amount to, for example, to Ellen, who,
if she accepts it, becomes the new holder and owner of the cheque, with the right to deposit the
cheque to her account and collect the $1500 from Mei.
• Why is this possible?.- because the cheque was written to bearer ( though it could also
have been written ‘or order’), allowing the cheque to be passed on to others. Mei would
have an obligation to pay that third party.
• In this way, they can mobilise short term capital.
• Essential features of negotiable instruments
• Transferability: two simple methods of transferring ownership ( such as from Delta to Ellen)
depending on type of cheque:
• Bearer cheque (e.g Pay : delivery, or
• Order cheque: indorsement on back (with signature) plus delivery
, • Ownership: generally, the final holder has right to sue for payment in his or her own name
• Title: generally, owner (final holder) obtains clear title to the instrument, even if an earlier
party lacked title due to theft
contrast this with transfer of stolen goods where the thief is unable to transfer title even to
an innocent buyer. Reason: application of Nemo Dat Rule- ‘You cannot give what you do not
have’.
Must still show that consideration has been given.
Important point that once the first holder has given consideration for a bill, every
subsequent holder is taken to have given consideration.
• Comparison with Transfer of a debt by assignment
• The debt can be transferred from person to person via negotiation.
• Each person who endorses the bill is liable to the holder
• The holder of the bill may sue in their own name:
• 43 Rights of holder
(1) The rights and powers of the holder of a bill are as follows:
(a) He or she may sue on the bill in his or her own name;
• One advantage over assignment is that it is not possible to make a legal assignment of part
only of debt.
• It is not necessary to plead and prove consideration has been given.
• No need to give notice to the original debtor.
• Assignee of a debt must sue in breach of contract if the debt is not paid.
• The holder of a bill of exchange is entitled to summary judgment for the face value of the
instrument.
• Formal Requirements
• Initially developed from custom of merchants and the practice of early trade.
• Modern definition in s.8 Bills of Exchange Act as above. Each element of the definition must
be met.
• Has three parties
• Drawer
• Drawee
• Payee
• Elements of the definition
• Unconditional Order
