21 Bills of exchange

Note the Deregulation (Bills of Exchange) Order 1996 SI 1996/2993, which amends the Bills of Exchange Act 1882, and concerns, inter alia, the presentation of cheques and duties of holders of bills.

21.1Definition of a bill of exchange –

Bills of Exchange Act 1882

Orbit Mining v Westminster Bank (1962) CA

A cheque form was made out to ‘pay cash or order’. The issue arose whether that was a cheque within the Bills of Exchange Act. Section 73 states: ‘A cheque is a bill of exchange drawn on a banker payable on demand.’ Section 3(1) provides that under a bill of exchange a sum must be payable ‘to the order of a specified person, or the bearer’. Finally, s 7(3) provides that: ‘Where the payee is a fictitious or non-existing person the bill may be treated as payable to the bearer.’

Held the document was not a cheque within the Bills of Exchange Act. The words ‘cash or order’ do not refer to a ‘specified person’ or ‘the bearer’. Further, ‘cash’ could not be said to be a fictitious or non-existent person.

Williamson v Rider (1962) CA

A promissory note was marked payable ‘on or before 31 December 1956’. Section 83(1) of the Bills of Exchange Act stipulates that a promissory note, like a bill of exchange, must be payable ‘on demand or at a fixed or determinable future date’.

Held (2:1) that instrument was not a promissory note. The introduction of the date 31 December limited the time in which payment should be made but it did not fix the date of payment, to bring it within the s 83(1) of the Bills of Exchange Act. Per Ormerod LJ (dissenting), although there was an option to pay earlier, the obligation to pay arose on a date certain.

Note

See Hudson, (1962) 25 MLR 593, pp 595–96. The Court of Appeal in Claydon v Bradley (1987) (‘by’ a certain date) felt bound to follow the majority. However, the dissenting judgment was followed in Canada in Burrows v Subsurface Surveys (1968) and in Ireland in Creative Press Ltd v Harman (1973).

Korea Exchange Bank v Debenhans (Central Buying) Ltd (1979) CA

A bill was payable ‘90 days D/A [documents against acceptance] of this first bill of exchange’. One issue was whether that instrument was a bill of

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exchange. Section 2(1) states that a bill of exchange must be payable ‘on demand or at a fixed or determinable future date’.

Held the instrument was not a bill of exchange because it was not payable on a date certain. The words could mean payable 90 days after presentation, or after acceptance or after its date.

21.2Transfer of bill of exchange

Bank of England v Vagliano Bros (1891) HL

A clerk employed by Vagliano forged the drawer’s signature to a series of bills and made them payable to ‘C Petridi & Co’, which was the name of a real company doing business with Vagliano. In ignorance of the forgeries Vagliano accepted the bills payable at the Bank of England. The clerk then forged the indorsement of C Petridi & Co as payee and presented them to the Bank of England, who paid him £71,500 on them. The clerk never intended that Petridi should be paid. At issue was whether the bank was entitled to pay the bearer of the bills and consequently debit the amount from Vagliano’s account. Section 7(3) of the Bills of Exchange Act provides that ‘Where the payee is a fictitious or non-existing person the bill may be treated as payable to the bearer.’ However, Vagliano argued that as the name of the payee was the name of a real company it was not ‘fictitious’; to be fictitious the name must be nothing but one of the imagination.

Held (6:2) the bank were entitled to pay the bearer and debit Vagliano’s account accordingly. This was because (5:3) the proper meaning of ‘fictitious’ is ‘feigned’ or ‘counterfeit’ and not ‘imaginary’ and so it does not matter whether the name is of a real person or not. Also (4:4), the bank was misled by the conduct of Vagliano.

Vinden v Hughes (1905)

A clerk was employed by Vinden to fill out cheques with the names of various customers, obtain the signatures of his employers and then post the cheques to the respective customers. Over a three year period the clerk made out 27 cheques to the order of various customers, obtained his employer’s signatures, forged customers’ indorsements and sold them to Hughes, who took in good faith. Hughes was paid on the cheques by Vinden’s bank. Vinden sued Hughes for the return of the money. Hughes relied on s 7(3) of the Bills of Exchange Act which provided: ‘Where the payee is a fictitious or non-existing person the bill may be treated as payable to the bearer.’

Held when Vinden drew these cheques they did not use the names as a pretence; consequently, the payees were not ‘fictitious’ within the meaning of s 7(3). Vinden were entitled to recover the money.

North and South Wales Bank v Macbeth (1908) HL

Macbeth was fraudulently induced by White to draw a cheque in favour of Kerr, a real person. White then forged Kerr’s endorsement on the

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cheque and paid it into his own account at his bank, who received the money from Macbeth’s bank. Macbeth sued White’s bank for the recovery of the money. The bank claimed it was protected by s 7(3) of the Bills of Exchange Act, which provided that: ‘Where the payee is a fictitious or nonexisting person the bill may be treated as payable to the bearer.’

Held although misled, Macbeth intended that Kerr receive the proceeds of the cheque. Thus the payee (Kerr) was not a ‘fictitious person’ within s 7(3). Thus Macbeth could recover from the bank.

Hibernian Bank v Gysin and Hanson (1939) CA

A bill of exchange was drawn by the Irish Casing Co payable three months after date ‘to the order of the Irish Casing Co Ltd only the sum of £500’ and crossed ‘not negotiable’. The bill was accepted by the defendants, indorsed by the Irish Casing Co and then transferred to the Hibernian Bank for value. When the bank presented it to the defendants it was dishonoured.

Held a bill crossed ‘not negotiable’ was not transferable and judgment would be entered for the defendants.

21.3Holder for value

Oliver v Davis and Another (1949) CA

Davis owed Oliver £350 and gave him a post-dated cheque for £400. However, when it fell due Davis was unable to honour it and so discharge the debt. So he asked his fiancée’s sister, Miss Woodcock, to give Oliver a cheque for £400, in order to discharge his debt to Oliver. This she did. Oliver did not present the cheque at once and meanwhile Miss Woodcock, discovering that Davis never intended to marry her sister, stopped the cheque. Oliver sued Miss Woodcock on the cheque and she argued that there was no consideration for it. The only consideration was the discharge of a debt of a third party, namely Davis. Section 27(1) of the Bills of Exchange Act provides that ‘valuable consideration for a bill may be constituted by … (b) an antecedent debt or liability’.

Held the antecedent debt must be due from the maker or negotiator of the instrument and not from a third party. As the debt was Davis’ and not Woodcock’s, Oliver’s claim would fail.

Diamond v Graham (1968) CA

Graham wished to induce Diamond to lend a sum of money to Herman. So he drew a cheque in favour of Diamond. In response, Diamond made the loan to Herman. Finally, Herman drew a cheque in favour of Graham. However, Graham’s cheque was dishonoured and Diamond sued him upon it. Graham argued that as no value had passed between himself and Diamond, Diamond was not a holder for value, and therefore could not sue on the cheque. Section 27(2) of the Bills of Exchange Act states that where value has been given for a bill, the holder is deemed the holder for value.

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Held Diamond was a holder for value. Section 27(2) required that value was given by the holder (Diamond); it was enough that value was given. Here there were two transactions which gave value for the bill. Diamond made a loan to Herman and Herman gave a cheque to Graham. See Thornley [1968] CLJ 196.

21.4Holder in due course

Jones Ltd v Waring and Gillow Ltd (1926) HL

A rogue owed Warings £5,000. So he fraudulently induced Jones Ltd to give him a cheque for £5,000 payable to the order of Waring and Gillow Ltd. The cheque was paid and later, when the fraud was discovered, Jones claimed for repayment of the proceeds because of mistake. One defence argued by Warings (who had acted in good faith) was that they were ‘holders in due course’ within s 21(2) of the BEA and so entitled to keep the proceeds.

Held that defence would fail because a ‘holder in due course’ did not include the original payee of a cheque. Judgment (3:2) was given to Jones on the principle of Kelly v Solari (1841), that money honestly paid by a mistake of fact was recoverable.

Arab Bank Ltd v Ross (1952) CA

Ross made a promissory note payable on demand to ‘Fathi and Faysal Nabulsy Company or order’. One of the partners of that firm indorsed the note ‘Fathi and Faysal Nabulsy’ omitting the word ‘company’ and discounted it to the Arab Bank. The Arab Bank claimed against Ross arguing, inter alia, that they were ‘holders in due course’. Section 29(1) of the Bills of Exchange Act states that a holder in due course must take the bill ‘complete and regular’ on the face.

Held the Arab Bank were not holders in due course. The omission of the word ‘company’ raised a reasonable doubt whether the payees and the indorsers were the same. (The bank succeeded on its other claim as holders for value.)

Jade International v Nicholas (1978) CA

Jade sold 2,000 tonnes of steel to Nicholas and drew a bill of exchange on them for the price. The bill was discounted by a German bank (who become holders in due course), who in turn discounted it to a second German bank who discounted it to the Midland Bank; Midland presented it to Nicholas for payment. However, because of a dispute over the quality of the steel, Nicholas dishonoured the bill. The Midland Bank exercised its right of recourse and the bill was passed back down the line until it reached Jade. Jade sued Nicholas on the bill, claiming to be a holder deriving his title through a holder in due course. Section 29(3) provides: ‘A holder (whether for value or not), who derives his title to a bill through a holder in due course … has all the rights of that holder in due course.’

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Held Jade would succeed. Although they were not holders in due course (because they had notice of the dishonour) they derived their title from the discounting bank.

Note

For criticism of this decision, see Thornley [1978] CLJ 236, pp 237–38.

21.5Liability on the bill

Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd (1968), see above, 7.3.2

Bondina Ltd v Rollaway Shower Blinds Ltd (1986) CA

Ward, a director of Rollaway, signed his name on a company cheque under the pre-printed words ‘Rollaway Shower Blinds Ltd’. Section 26(1) of the BEA provides that where a person signs a bill indicating that it is on behalf of a principal he is not personally liable. Ward denied that he was personally liable on the cheque.

Held Ward was not liable. When he signed the cheque he adopted all the writing on it, including the name of the company and its account number. This showed that the cheque was drawn on the company’s account and no other.

21.6Payment and discharge of a bill

Glasscock v Balls (1889) CA

Balls owed Wayman £289 and gave him a promissory note payable on demand to Wayman’s order, as security on the debt. However, Balls’ debt increased to £641 and so he executed a mortgage in favour of Wayman to cover the total debt. Wayman assigned the mortgage to Hall for £700, and then indorsed the promissory note to Glasscock. Glasscock, who took the note without notice of the previous transactions, sued Balls on it.

Held Glasscock could recover. The discharge of the underlying contract (the first debt between Balls and Wayman) by supplying fresh security did not discharge the note.

Eaglehill Ltd v Needham Builders Ltd (1972) HL

Needhams drew a bill of exchange on Fir View Furniture Ltd payable at Lloyd’s Bank on 31 December. They then discounted it to Eaglehill (who become ‘holder’). Shortly afterwards, Fir View Furniture went in liquidation and both Needhams and Eaglehill were aware that the bill would be dishonoured upon presentation for payment. Section 49 Bills of Exchange Act provides that the holder of a bill which has been dishonoured may hold the drawer or indorsers liable, but only if he gives a ‘notice of dishonour’ after the bill’s dishonour to those parties. Eaglehill prepared a

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notice of dishonour dated 1 January but by mistake posted it on 30 December. In the first post of the morning of 31 December, Needhams received the notice and the bank received the bill. Eaglehill sued Needhams on the bill. Needhams argued that as the notice was given before the bill had been dishonoured they were discharged from liability.

Held Needhams were liable. First, the notice is ‘given’ within s 49 when received, and not when posted. Secondly, where the notice was given on the same day that the bill was dishonoured and it is impossible to prove which preceded the other, the court would assume that events took place in the order that they ought to have done. Therefore the House of Lords regarded the notice as having been given after the bill was dishonoured.

Barclays Bank v Simms (1980)

A Housing Association sent a cheque for £24,000 to Simms, a firm of builders, in respect of building work completed. The cheque was drawn on Barclays Bank. The following day Simms went into receivership and the Housing Association instructed Barclays not to pay the cheque. However the cheque was paid by mistake. Barclays sued the receivers for the return of the money.

Held Barclays could recover. If a person pays money under a mistake of fact he is prima facie entitled to recover that money. However, the claim may fail if: (i) the payer intended that the payee have the money in all events, be there a mistake or not; or (ii) consideration is given for the payment, especially the discharge of a debt; or (iii) the payee alters his position in good faith. First, clearly the bank did intend to pay in any event. Secondly, there was no consideration because the bank was acting without mandate and so the payment was not effective to discharge the drawer’s (the Housing Association’s) obligation on the cheque. Thirdly, there was no evidence of alteration of position by Simms or their receivers.

21.7Documentary bills

Cahn & Mayer v Pockett’s Bristol Channel Steam Packet Co Ltd (1899) CA

A Liverpool firm sold on CIF (see above, 20.1) terms a quantity of copper. The buyers resold it to sub-buyers. The sellers shipped the copper and forwarded the bill of lading and the bill of exchange (known collectively as a ‘documentary bill’) but the buyer refused to accept the bill of exchange; however he sent the bill of lading to his sub-buyer.

Held if a buyer fails to accept the bill of exchange he is bound to return the bill of lading to the seller. If he wrongfully retains the bill of lading, the property in the goods does not pass to him (s 19(3) of the SGA). However, this method of payment (documentary bill) does not prevent a buyer who has dishonoured the bill of exchange from passing good title to a third party under s 25 of the SGA (s 9 of the Factors Act) or other nemo dat exceptions.

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