Bill of Exchange, a document purporting to be an instrument of pecuniary obligation for value received, and which is employed for the purpose of settling a debt in a manner convenient to the parties concerned. The original and simple purpose of a bill is to obviate the necessity of cash payments in the settlement of accounts between parties at a distance from one another. Thus, A and B are two merchants in London; and C is a merchant in Cadiz. A owes C £1000; and C owes B a like sum. Instead of A sending cash to C, and C to B, C draws a bill for £1000 upon his debtor A, and sends it on to B, who receives the amount from A; so that the transaction throughout is settled, without a farthing in money being sent from Cadiz to London, or from London to Cadiz. It is easy to see that a bill may, in a similar manner, pass through several other hands before it finally comes back to A, and is paid by him. Another simple idea of a bill is this: One person owes another £100 for goods, for which he is to have credit for three months. The creditor, however, not being able conveniently to be without the money for that length of time, gets from the debtor an obligation or bill bearing that the £100 is to be paid in three months. This bill, being a negotiable instrument, will be discounted by a banker, or other capitalist, who now stands in the position of the creditor, and receives payment when the bill is due. Thus, a bill of exchange performs two kinds of offices in commerce—it saves the transmission of coined money, and it enables creditors not only to fix down debtors to a day of payment, but to get the use of a sum equivalent to the debt (less a small discount) before it is properly due.
The origin of this important mercantile instrument is usually attributed to the Jews and Lombards, when banished from France and England in the 13th century. It is certain that hitherto no trace of such bills has been discovered either in the Roman code, or in any other system of ancient jurisprudence. The first notice of them in modern times occurs about the middle of the 12th century, and by the end of the 14th they had got into general use in all the commercial states of Europe. In England, from about the middle of the 14th century down to the time of James I., and for many years after, bills of exchange were restricted to the purposes of foreign commerce. What are called inland bills—i.e. bills drawn by and upon persons resident in this country—were not employed much earlier than the reign of Charles II., and even then they were regarded with distrust and jealousy by the English judges. Another restriction upon bills of exchange was, that the privilege of their use was confined to merchants. But all restraints on such instruments gradually yielded to the wants and conveniences of society, and now any one capable of making a contract cau be a party to a bill transaction, without regard to position, calling, or occupation. In Scotland, inland bills were put on the same footing with foreign bills, by an act of the Scottish parliament passed in 1696. Numerous enactments were passed from time to time, until in 1882 a measure became law, known as the Bills of Exchange Act, 1882 (45 and 46 Vict. chap. 61), which was intended to codify the existing law relating to bills of exchange, cheques, and promissory-notes. Besides doing this, the act introduces certain changes into the existing law, and in particular it assimilates in nearly every respect the laws of the three kingdoms in regard to bills or notes. Differences still exist in the following points: A bill does not in England, as it does in Scotland, operate as an assignment in favour of the holder of a debt due by the drawee to the drawer; the act does not alter the former rules as to bankruptcy in Scotland, nor in regard to the sexennial prescription or limitation, and the summary methods of enforcing payment, which continue to differ to some extent in each country; and in Scotland consideration is not required to support a bill as it is for simple contracts in England. The laws relating to bills in the United States, and in the various British colonies, are similar to the English law.
A bill of exchange is defined to be a written and unconditional order, addressed by a person who is called the drawer, to another person called the drawee, desiring him to pay a certain sum of money to a specified person, or his order, or to bearer, within a certain time after its date, or after it is presented for payment, or on demand. If the drawee signs the bill in token of his agreeing to this request, he is called the acceptor. A Promissory-note (q.v.), though differing in form, is in all essentials equivalent to a bill. It is, in fact, simply a bill in which the drawer and the acceptor are identical. A bank-note is a promissory-note issued by a banker, payable to bearer on demand, and a bank cheque is a bill of exchange drawn on a banker. Subject to certain special provisions they are regulated by the same rules as other bills: For the constitution of the bill itself, no particular form of words is necessary, provided its characteristic qualities clearly appear on the face of it, as a pecuniary instrument and an unqualified order. A bill of exchange is only good for a certain sum in money; such an instrument for the delivery of goods or property other than money would not be a bill. But although no particular words are required in a bill or note, it is always advisable to adhere, as much as possible, to their customary form. The only restrictions in regard to amount are that no bills or notes can be issued or negotiated in Scotland for less than 20s. (8 and 9 Vict. chap. 38), and that notes for less than £5, payable to bearer on demand, cannot be issued in England, nor, except by bankers, in Scotland or Ireland.
Besides the other requisites mentioned, bills of exchange must be duly stamped. The regulations on this subject are contained in the Stamp Act, 1870, and are to be found in almanacs and other publications in common use. The omission of the stamp, or using a stamp of insufficient amount, cannot be subsequently rectified; the bill is altogether void, and the parties to it are liable to a penalty of £10. A bill payable on demand, however, which is only liable to a stamp-duty of one penny, may be stamped with an adhesive stamp subsequent to its issue, but the above penalties are still enforceable. The duties on bills drawn out of the United Kingdom are denoted by adhesive stamps, to be affixed by the holder of the bill before negotiating it.
The following is the usual form of an inland bill of exchange (for foreign bills, see below):
£100.
LONDON, 2d January 188—.
(Stamp.) Two months after date [or 'at sight,' or 'on demand,' or 'at — days after sight'], pay to Mr E. F., or order [or 'to me, or order,' or 'to bearer'], One Hundred Pounds, for value received. A. B.
To Mr C. D., Merchant, Bristol.
From this form it will be seen that there are usually three parties to a bill of exchange, these three being: (1) The drawer (A. B.); (2) the acceptor or drawee (C. D.), to whom the order is addressed; and (3) the payee, or party in whose favour the bill is drawn, and who is entitled to receive the contents (E. F.). The transaction, however, may be simply between the drawer and acceptor, without the interposition of a third party; and there are other modifications and changes of form, according to the circumstances of the case, and the mode in which it is desired to have the bill negotiated. The bill being thus in proper form, and duly authenticated, is then presented for acceptance, which may be defined to be the act by which the drawee evinces his consent to comply with, and be bound by, the request contained in the bill of exchange directed to him; or, in other words, it is an engagement to pay in money the bill when due. Acceptance in the case both of inland and foreign bills of exchange must now be in writing on the bill, and signed by the acceptor, or some person duly authorised by him; the mere signature of the drawee, without any additional words, being sufficient. There are certain precautions to be observed before accepting. The drawee should, upon presentment for acceptance, and before he accepts, assure himself that the signature of the drawer is genuine, and that there has not been a fraudulent substitution of a larger sum than that originally inserted in the bill by the drawer. And if the drawee accept a forged bill, or a bill for a larger amount than that originally named by the drawer, he will nevertheless be liable to pay a bona-fide holder. There is also acceptance supra protest, which takes place where, after a bill has been protested for non-acceptance, but not before, any person, not already liable on the bill, may accept it supra protest, which acceptance is so called from the manner in which it is made. Where the drawee of a foreign bill cannot be found, or is not capable of making a contract, or refuses to accept, this description of acceptance is frequently made in order to save the credit of all or some of the parties to the bill, and prevent legal proceedings. In this country it is called an acceptance for the honour of the person or persons for whose use it is made, and in France an acceptance par intervention. The drawer or indorser of a bill may insert in it the name of a person to whom the holder may resort in case of its non-acceptance. In place of simply assenting to the order, the drawee may qualify his acceptance by making payment dependent on the fulfilment of a condition, as 'the delivery of bills of lading.' An acceptance may also be qualified as to the amount or currency of the bill or the place where it is payable. An acceptance 'payable at Coutts' Bank' would be general, but 'payable at Coutts' Bank only' would be a qualified acceptance. It must be observed that while the acceptance or indorsement may be qualified, the bill itself as drawn must be an unconditional order.
The bill as a negotiable instrument being thus complete in all its parts, may either be held by the drawer or other payee till due, when it is presented for payment to the acceptor, or it may at once be transferred for Indorsement (q.v.), the indorsee taking it for its value at maturity, and in the meantime cashing or discounting it to the holder. There may be a succession of indorseees, the last of whom is entitled to payment; and to him all the other indorsees, as well as the drawer and drawer, are bound. Like the acceptance, the indorsement may be qualified or conditional, and it may also be restrictive, as 'pay A. B. only,' thus prohibiting the further negotiation of the bill. An indorser may also add the words 'without recourse,' so as to negative his own responsibility to the holder. This method of disposing of bills without a concurrent obligation by indorsement is better known and more practised in the United States than in England. Instead of discounting his bills in the usual form through a banker, a merchant in New York will sell his bills to a broker or dealer in this kind of instrument, the price paid being according to the state of the money-market and the creditworthiness of the acceptor. In such cases, the purchaser stands in the place of the drawer, undertakes all risks, and as custodian of the bill has the power of legally exacting payment.
When the bill arrives at maturity, that is, on the day when its payment is due, it must be presented for payment to the acceptor at the place or address mentioned in the bill; if none is mentioned, then at his place of business or residence. If the holder fail to duly present, the drawer and indorsers will be relieved of liability; even the known death or bankruptcy of the acceptor will not excuse presentment for payment. It may, however, be dispensed with if the acceptor is a fictitious person or is not bound to pay the bill, if the parties expressly waive presentment, or if, after reasonable diligence, the acceptor cannot be found.
When the bill is not payable on demand or at sight, three days of grace are added to the currency of the bill, on the last of which the bill becomes payable. Should the last day of grace fall on a common-law holiday, as Sunday, Christmas-day, or Good Friday, or a National Fast or Thanksgiving Day, the bill is payable on the preceding day; but if the last day of grace is an ordinary statutory bank holiday, the bill is due on the succeeding business day. If the acceptor is unable to pay, he may endeavour to arrange for a renewal of the bill—i.e. the drawing of a new bill with an extended currency. Failing such an arrangement, if the bill is not paid on presentment, the holder must give immediate notice of its dishonour to the drawer and indorser, from whom he can then claim payment. To preserve this recourse, it is not necessary to note or protest the bill, this act being now necessary only in the case of foreign bills, and, in the case of inland bills, as a preliminary to acceptance or payment for honour, or to preserve the right of summary diligence in Scotland. The acceptor, as primary obligant, may then be proceeded against in a very speedy form in England under the 'Summary Procedure Act, 1885,' and in Scotland by the still more direct method of summary diligence, without further action, under the old statutes of 1681 and 1696.
By the Statute of Limitations (see LIMITATION) in England, and Prescription (q.v.) in Scotland, bills and notes (except bank-notes) become of no effect in six years after their due date, but the creditor may still recover on the original claim in satisfaction of which he received the bill.
ACCOMMODATION BILL.—A bill in its legitimate sense is a document constituting a debt, and as such is beneficial to all parties connected with its negotiation. A owes B £100. A cannot conveniently pay the amount, while B is in need of it; B draws on A, and C (a banker) discounts—i.e. for a consideration pays the amount to B. B thus gets his money at once, A obtains time, while C makes a profit for advancing. These facilities have had the effect of inducing bills to be resorted to for raising money where no value is given, and in which one party gives the use of his name for the accommodation of another. In the above case, for example, let us suppose that A does not owe B, but yet accepts B's draft. If C discounts the bill, it is immaterial whether he knows that A has got value or not—as an onerous holder, he can compel payment from A if B cannot pay the bill. But if merely in B's hands, the amount is not recoverable from A if the latter can prove that no value was received by him. Accommodation bills, being a simple and easy way of raising money on credit, often give rise to fraud and rash speculation, and many attempts have been made to suppress the system; but it is difficult to do so without unduly interfering with the negotiation of bona-fide bills.
FOREIGN BILL OF EXCHANGE is a bill which is either both drawn and accepted abroad; or drawn by a person residing abroad on a person in this country, or the reverse. The risk of miscarriage to which these bills are liable in their transmission to distant countries has given rise to the custom of drawing them in sets; that is, writing out two or three of the same form and tenor, and transmitting them to the payee by different channels, so that if one or two of the individuals of any set are lost, the other might reach its destination. The first of the set that is presented and accepted is alone entitled to payment, and payment of it discharges the acceptor; but foreign bills, of course, may also be drawn singly. The following is the usual form of a foreign bill:
£1000.
JAMAICA, 2d January 188—
Fifty days after date pay this First of Exchange (second and third of same time and date unpaid) to the order of A. B., One Thousand Pounds sterling, value received. C. D.
To E. F., London.
If a bill be drawn in this country upon a correspondent abroad, or a foreign house, it must be stamped; and when drawn abroad, it must be stamped by the holder, before he can present it for payment, or indorse, transfer, or otherwise negotiate it within the United Kingdom (Stamp Act, 1870, sect. 51). Formerly, a bill drawn or payable in Scotland or Ireland, was foreign in England; but such bills are now inland, and the same regulation extends to the islands of Man, Guernsey, Jersey, Alderney, Sark, and adjacent islands (Bills of Exchange Act, 1882, sect. 4). The same act, sect. 72, provides that the liabilities of the drawer, the acceptor, and indorser shall be governed by the laws of the countries in which the drawing, acceptance, and indorsement respectively took place. The duties of a holder are determined by the law of the place where the act is to be done, and the due date depends on the law of the place where the bill is payable. Thus, a bill drawn in Paris or Berlin on London, is entitled to three days of grace, but a bill drawn in London on either of these places has no days of grace, these not being recognised by the laws of France or Germany. If a foreign bill is dishonoured by non-acceptance or non-payment, it must be duly protested, or the drawer and indorsers are discharged. In the case of foreign notes protest is not necessary, but it is always advisable if the makers of the note are to be sued abroad, as the law of the foreign country may require protest. Except in a few points, the laws of most commercial countries agree with those of the United Kingdom in regard to bills. See Byles, On Bills (1885); Chalmers, On Bills of Exchange (3d ed. 1887).