BNK 603 THE LEGAL ASPECTS OF BANKINGClick to edit Master subtitle style

BILLS OF EXCHANGEWEEK 15/22/12

LECTURE 1

Outline Introduction to Bills of Exchange Uses of Bills of Exchange Advantages & Disadvantages of

Bills of Exchange Elements of Bill of Exchange Parties to Bills of Exchange Dealings 5/22/12

with

a

Bill

of

Introduction to Bills of Exchange The bill of Exchange act 1985 s3(1)

defines bill of exchange as. 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 or5/22/12

Bill of ExchangeContd The essential characteristic of the Bill of

Exchange is its negotiability.As a negotiable instrument the payee can

sell it, at a discount to a bank to raise some cash immediately, albeit at less than the full face value of the bill.There is a discount on the bill since it will

not be redeemable at face value until maturity.The purchaser is entitled to earn a profit for 5/22/12

Bill of ExchangeContd The seller will take this into account

when fixing the price for the goods. Alternatively he may require the buyer to open a Documentary Credit with a bank under which the bank undertakes to accept a Bill of Exchange drawn on it by the seller; the banks acceptance will increase the discount value of the bill.5/22/12 person in lawful possession of the The

Uses &Advantages of Bill of ExchangeBills enable the avoidance of multiple

transfers of actual currency which could be impractical, if not dangerous.Bills

are treated commercially on maturity as cash, being generally unaffected by counterclaims. (Exception to this rule is Fraud)5/22/12

Disadvantages of Bill of Exchange Bill of Exchange as a method of payment in

international trade, offers both advantages to the seller and B. period between the purchase of the goods and maturity of the bill. maturity date by selling the bill.

The buyer is effectively afforded a credit

The seller can obtain his money before its

5/22/12 However:

Disadvantages of Bill of ExchangeHowever, this system offers the seller

relatively little security since the bill may not be honored by the buyer even after acceptance.If

this is the case, the seller having transferred it to the bank will be liable on it and may be sued by the bank.

Also, the seller will almost always receive 5/22/12

Types of Bills of Exchange

There are five types of Bill of Exchange: Inland and Foreign Bills Accommodation Bills Trade or Commercial Bills

5/22/12

Inland Bills Bill of Exchange Act (1909) S 9(1)

defines Inland Bill as a a bill is, or on the face of purports to be, both drawn and payable in Australasia, or which is, or appears to be drawn within Australasia upon 5/22/12

Inland Bills..(Contd)

Australasia is defined in s(4) as Australia and any Australian Territory, New Zealand and the Fiji Islands.

Thus, a bill drawn in Sydney on a

person resident in Nadi; is an inland bill even though it maybe payable in New York, since it is both drawn upon a person resident in Australasia (Nadi, Fiji).5/22/12

Foreign Bills

A bill that is drawn on one country but payable in another. The financial instrument must be addressed by one person to another, requiring him to pay the bearer or holder a sum certain in money.

5/22/12 Mostly used in foreign trade.

Foreign Bills(Contd)

Example:

When a businessman from one country

draws a Bill of Exchange on a businessman belonging to another country;

In other words, the drawer and the acceptor lives in different countries; 5/22/12 than such a Bill of Exchange will be

Foreign Bills(Contd)

In Foreign Bill of Exchange, three copies of bill are made and each copy bears a reference of the other two copies. All the three copies are dispatched to the Acceptor by a different mode.

5/22/12 is done because in case, the This

Foreign Bills(Contd)

However, on the payment of the first copy of the Bill of Exchange, the other two copies become redundant.

Another point to be kept in kind in

relation to Foreign Bill of Exchange, a Foreign Bill is stamped twice, once in the country of the drawer and once in the foreign country. 5/22/12

Difference between Inland Bill &Foreign Bill of ExchangeBasis of DifferenceParties

Inland Bill

Foreign Bill

The drawer &theIncase of Foreign acceptor of an InlandBOE, one of the BOE are of the same parties is a country

Language

Foreigner Inland Bill is drawn A Foreign Bill is in the language always drawn in prevalent in the English country in which it is drawn An Inland Bill is A Foreign Bill is

5/22/12

Accommodation Bills

5/22/12

Trade or Commercial Bills

5/22/12

Inchoate Bills

5/22/12

Elements of Bill of Exchange It Must be Unconditional- Section 8 (3) The bill must be unconditional between the

drawer and drawee.

Thus, a requirement that payment is only to be

made provided that something is done, for example the payee has signed the receipt attached to the bill would render the bill invalid.5/22/12

An Unconditional Order (Contd)

The question of what constitutes an unconditional order was judicially discussed in Rosenhain v Commonwealth Bank of Australia (1922) 30 CLR 46 by Knoxx CJ, Gavan Duffy and Starke JJ. The instrument in question had the words Documents against Acceptance typed at the top of the document. of those words.

The court refused to determine the legal effects It was said, what ever their effect, once the5/22/12 drawee has accepted the bill, his promise is

An Unconditional Order (Contd)This

decision leaves the question open but indicates that it will be determined in the context of the particular promise by the acceptor, and that the pre-condition that is fulfilled before the acceptance will not of itself render the bill conditional.

One of the most common conditions which takes

an instrument outside the definition of the Bill of Exchange is an order for payment which is conditional upon the payee signing a form of receipt either annexed to the instrument or 5/22/12 which forms part of the instrument itself.

An Unconditional Order (Contd) An example would be payment made

dependent upon arrival of a particular ship.Even the subsequent happening of the

event does not make the bill valid.Another example of a conditional order

would be a provision to pay only if the

5/22/12

It Must be In Writing- S (4)

S(4) of Bill Of Exchange defines writing to include print.

A bill may be written in any language

and on any substance(except metal) capable of delivery. There is no requirement that the5/22/12

It Must be Signed By the Person Giving It Section 28 of BOE Act (1909) states:

(1) Subject to this section, a person is not liable

as a drawer, indorser or acceptor of a bill if he has not signed it as such. or an assumed name, he is liable on the bill as if he had signed it in his own name.

(2) Where a person signs a bill in a trade name

(3) The signature of the name of the firm is

equivalent to the signature, by the person so signing, of the names of all persons liable as 5/22/12

It Must be Signed By the Person Giving It (Contd) The signature must be that of the drawer or hisagent.A signature in the name of the trade name is

acceptable and a corporations seal is equivalent to a signature.

It is a basic principle that a signature is required

before a liability is incurred on a bill of 5/22/12 exchange.

It Must be Signed By the Person Giving It (Contd)

Is an instrument bearing a rubber stamp or other facsimile of a drawers signature or a name printed by telex machine in fact signed by the person making the instrument?5/22/12

It Must be Signed By the Person Giving It(Contd)

Case: Torrac Invesments Pty v Australian National Airlines Commission (1985) ANZ Conv R 82, Derrington J Held a document bearing a teletyped signature to be signed for the purposes of the requirement for writing of a 5/22/12

It Must Be Addressed by one Person to AnotherIf the drawer and the drawee are the same

person, the holder(the owner) can choose to treat the instrument as a bill of exchange or a promissory note.

S11(1)

states that the drawee must be named, or otherwise indicated, with reasonable certainty.5/22/12

It Must Require Payment of a Certain Sum In Money (a) with interest (b)by stated instalments

A sum of money is still certain within the meaning of the Act although it is paid:

(c) according to an indicated exchange rate to be determined as directed by the bill. Case: Rosenhain v Commonwealth Bank of Australia (1922) 30 CLR 465/22/12

To or to the Order of a Specified Person, or to BearerA bill is payable to order if it is expressed to be

payable to a particular person or to somebody indicated by him, that is Pay X or pay X or order.

A bill is payable to bearer if it is:

Drawn payable to bearer Indorsed in blank, that is, the payee or a

5/22/12

It Must Payable on Demand or At a Fixed or Determinable Future Time payable on demand where it A bill is expressed to be payable or where itexpressed to presentation. be payable at sigh or

is is on

What happens if there is no date for

payment included on the Bill?

What happens when an overdue bill is5/22/12 indorsed or accepted?

If a bill is not payable on demand or at a fixed future time (Example: 90 day Commercial Bills): It must be payable at a determinable future time, which includes a bill expressed to be payable at a fixed period after date or sight.5/22/12

It Must Payable on Demand or At a Fixed or Determinable Future Time

Parties to Bill of Exchange

Three Initial Parties are:

Drawer

Payee Drawee5/22/12

Parties to Bill of Exchange.. (Contd) Drawer:

If the bill is put into circulation

immediately after signature by the drawer, the drawer is the only person liable on the bill to third parties and to the payee for the amount ordered to be paid. 5/22/12

Parties to Bill of Exchange.. (Contd)Drawee: The drawee may have a contractual obligation to the drawer to pay bills drawn on him. drawers account with the drawee.

Example: Up to the amount credited to the

5/22/12

Payee

5/22/12

Dealings with a Bill of Exchange

5/22/12

END OF LECTURETHANKS FOR YOUR Click to edit Master subtitle style ATTENTION!!!A. Sharma

5/22/12