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A bill of exchange is an unconditional order in writing
“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". Great Britain (1882) Bills of Exchange Act 1882.
Characteristics of a bill of exchange
A bill of exchange (it will be referred to as BOE) has several characteristics such as that it is a credit instrument. When understanding the rights within BOE, one has to make sure that they are deduced independently from any other source and also that the holder of the BOE does not carry any rights of previous holders or indorsers. For a person to be able to use the BOE, he has to have the document itself. BOE is interchangeable to any other credit instrument. BOE is assigned with all its rights and obligations either by delivery or by endorsement. Another characteristic is that a BOE establishes executive titles which mean that in case of any claims one does not have to open court case but would have to file executive warrant. The BOE also has some basic requirements to adhere to. The BOE is also considered independent from the transaction which gave rise to a BOE. The BOE has an unconditional order for payment. It is also used for commercial obligation and it must be paid in money which should be certain.
The parties of a bill of exchange
There are two main types of a BOE; these being a two party BOE and a three party BOE. In our case we are assuming that it is a three party BOE. This means that there are three parties involved; the drawer, the drawee and the payee. The drawer is the one who issues a BOE. He instructs the drawee to pay the BOE to the payee on maturity. In case of a default from the drawee, he will be held responsible. The drawee is the one responsible to pay the BOE. He becomes an acceptor and the principle debtor once he accepts to pay the BOE. In our case Andrew is the drawee. On the other hand the payee is the holder of the BOE, he is the one who has to receive payment. He can also endorse the BOE to another person where he is no longer referred as the payee but the indorser. Whilst in our case Paul is the endorsee.
The Duties of the Holder
(Borrie, 1988) Mentioned the fact that one of the duties of the holder is that he has to present the BOE to the drawee for acceptance. If he accepts the bill the drawee becomes an acceptor. Where the drawee accepts to BOE he is obliging himself to pay the BOE on maturity. The acceptance must also be unconditional. Conditional acceptance is equivalent to non-acceptance. However there can be the case where he does not accept and this is called ‘dishonour of the bill by non-acceptance’. The latter is what happened in the case of Paul and Andrew. This is because the drawee has the right of not accepting it even if he would have promised to accept it, or if he received funds from the drawer. The holder of the BOE upon giving notice has the right to claim payment from the drawer and the indorsers. Where a drawee is dead, there is an exception as the BOE would be treated as dishonoured by non-acceptance. When the holder presents the BOE for acceptance, the drawee has to accept it within 24 hours. If he does not do so, the holder must consider it as dishonoured by non-acceptance. After the 24 hours the drawee has to present the BOE to the holder whether he accepted it or not. In the case of partial acceptance, the same reasoning applies, meaning that if the drawee does not accept the whole BOE, the holder has to inform all parties and the drawer and indorsers are liable for the balance.
(Borrie, 1988) Also states that if the BOE is not payable on demand, the holder has to present the BOE on maturity, or else the drawer and the indorsers would be released. Case: in Yeoman Credit Ltd v Gregory, the BOE was accepted to be paid at the NP Bank, however he was notified by the agents of the acceptor that he has to present the BOE at M Bank, which he did on the maturity date. Nevertheless this was also refused and the following day he presented the BOE at NP Bank. However Megaw J said that since it was not presented on maturity at NP Bank, the indorsers were released from any legal responsibilities. The presentment for payment has to be made at the place mentioned on the BOE, or if not found at the drawee’s address, or at the drawee’s place of business, or at his ordinary residence or if not also found wherever the drawee is found.
(Borrie, 1988) states that if a BOE is not accepted at maturity, a BOE is dishonoured. This can be in two ways; dishonour by non-acceptance and dishonour by non-payment meaning payment is refused or excused. (William Hedley, 1986) Also added that “as soon as a bill is dishonoured for non-acceptance, the rights of the holder of recourse against the drawer and indorsers arise immediately without any need for presentment for payment". (Borrie, 1988) Mentioned that in both cases the holder should inform the drawer and the indorsers or else they would be released from their liability. So the law grants the holder an action of recourse for non-acceptance. The notice given should be written or oral and he should give to the drawer or indorser the dishonoured BOE. As soon as the bill is dishonoured notice should be given and this should be given after reasonable time.
(William Hedley, 1986) Also mentions the importance of the notice of dishonour and he also adds that those parties who did not receive the notice are free from any liabilities under the BOE. So the holder should notify the endorser and the endorser should notify his previous endorser and so on. Lack of abiding to this process, if any party does not give the notice to the previous endorser, he would be liable and would lose the right of recourse against prior indorsers and the drawer.
(Borrie, 1988) States that in special circumstances, the holder should wait until he actually receives the dishonoured bill to give notice. Example of a case is Lombard Banking Ltd v Central Garage and Engineering Co Ltd. The notice of dishonour can be posted before the BOE is dishonoured; however it cannot be received before the BOE is dishonoured.
(Redmond, 1993) states that “even where it is known that a bill will be dishonoured on presentation on maturity (because, for example, of the drawer’s insolvency) notice of dishonour must not be given until dishonour has actually occurred". A case is of Eaglehill v J Needham Builders Ltd (1972). The dishonour of the bill and the notice of dishonour arose on the same date. The House of Lords said that both followed proper order.
(William Hedley, 1986) Notice should be given to the party liable on the bill. If the party liable is dead, it should be given to his representatives and if the party liable is bankrupt, the notice should be given to his trustee in bankruptcy.
So where BOE is dishonoured by non-acceptance or non-payment, the holder should give notice and protest it. Sufficient security should be given by the drawer and prior endorsers that the BOE will be paid on maturity and that any expenses incurred by the drawee whilst protesting the BOE for non-acceptance and the filing of this action will also be paid. The holder should protest the BOE for non-acceptance and section 247 of the commercial code lists that it should be drawn by the notary public, he should go at the place of business or residence of the drawee and the notary should ask the drawee either to accept it or to pay according to the case. According to section 248 of the Commercial Code. If the drawee does not accept and does not accept to pay then the notary must draw up this protest containing a copy of the bill and he must specify:
The name of the person in who’s favour the protest is to be made, a demand for the bill to be accepted
A demand or a request depending on the case to accept to pay the BOE
The presence of the drawee
The reasons of the drawee for either non-payment or non-acceptance
The date on which the request was made or unsuccessfully attended.
The protest should be made on the following day of non-acceptance. If the bill is marked as ‘without protest’, the protest for non-acceptance cannot be done, but the filing of action of recourse for non-acceptance has to be done immediately. The holder still needs to protest the BOE even if the drawee is dead or bankrupt. The holder must then send the protest to the endorser and the endorser should send the protest to his prior endorser.
Where the holder may fear that there will be no payment on maturity, an independent party may intervene and accept BOE for the honour of the drawer or of one of the indorsers with or without order from the drawer or indorser and this process is called acceptance for honour.
Ara Journals u amel recapitulation of Paul and Andrew..check for plagiarism
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