CHAPTER 16 Bills of exchange 1 The use of bills of exchange Funds Transfer asa Deferred Settlement § tem’ by Ep i= RM Goode ed) Blectronic Banking, he Lege! Implications fee ie : 1 ignatures of ie ills market. re drawer ihe Several times on the by Feimburseny Maat Stchange ae being used Tax al othe purchaser: Buin alle css ry = charge the person on whom itis Caccepeance’) cons stitutes a deferred payn a ‘as to be negotiable is the Bills Of Exchange Act [882 GEES, Who also drafted the It is a masterpiece! “to codify the law relating e {although it also alvered Its interpret a couifical™ ask what is its f the law ro we and etme he aw 38, EXEACE hati anowledge of the urence. Lam of souse fa he purpose of ai sete fom be of doubtTul arate law of nega echnical meaning, or bee instruments, the Same inter examples merely: they. of c toinsist upon is, that the fi that an appeal to earlier des One further remark |b. TheBills of Exchange Act ismoropen to question that motthink that itis to be pres the existing law, rather thai NOTES 1. The Act does Rot, in ; #8, cheques and 1957, 5 5), 2. Lord Herschet! gave Yon Law as an aid remains relevant ir Owing extract, law. TonkThe Bills of ray pank of England v Vagliano Bros (1891) AC 197 " "Re Act 1882 soy cts appear below, p 507. Tt + House of «the facts appeal P fecal ao ‘ a Court of Appeal had qualified the veal Jon the mea ation to be found in the common jay.) 8 % Me st Lords 8 Of 573) ubsection pe) tthe fii bsection by yo the BEA introduc ing a rd Herschell: My Lords, with sincere respeo ves feanmer bring ssf (o ink that hs oe RE a ills of Exchange Act, which was intended to po eet Mey 10 de Rumen [think the proper couse ono imgeandtoask what sis natural meagi sameevious sate of he law and-nove then, assuming that it was probably inte lacs who aw aode othe istance te enced ne : aon deed ded 1 aating how the law previouly wae ‘nded to leave it unaltere Ne eee Bian ioembody in code aparicular branch ey hc ap obs fishion, tappears ome thatitsuility willbe almost entree ye, an eget Oo eater tllbesfrustrated. The purpose of ec ev 2 ae ate suey was no ould be aserined by intpeing te autores monk wanes have taken hig hastaie sae ting to nono amine the language ay the Be of the code. If, for example, ‘Ould be perfectly legitimate, Or, again, if in a Is be found which have previously acquired a er than their ordinary one, in relation to such ell be put upon them in the code. I give these as do not exhaust the category. What, however, Lam venturing Step taken should be to interpret the language of the statute, and to earlier decisions can only be justified on some special ground. herremark [have to make before I proceed to consider the language of the statute 7 fe Act was certainly not intended to be merely a code of the existing law. It tion that it was intended to alter, and did alter it in certain respects. And Ido presumed that any particular provision was intended tobe a statement of than a substituted enactment. , Or been used in a sense oth ats, the same interpretation might ws m ey, of course, in general, extend to negotiable instruments other than bills of and promissory notes (although see BEA, s 95 and Cheques Act gitimate to examine the fe examples of when it would be legitimate to examine th id to Beastution of the provisions of the BEA. The common in many other ways. This is emphasised by A Barak in the ael LR 49, ble Instrument’ by A Barak (1983) 18 Isra 1: since itis a chattel ~ the gation ~the general sy: since it isan oblizat gener ity); and since ipis x negotiable papes a Hae ene ries, the law of negotiable ins! — nents, In mos co's Bills of Exchange Ordinance dea is ody of rules.is of exchonee 4 tae ball ae corvered try t M weeniabhe vnstrumnents ithe ne, The former deals with th terrae ser mb a special legislation. The latier desi in the general law. T is woul dation om rergohiable instrument asting oft such lnctromenas Fe mate of the rales of 13 ont of that, aleragsihe the: sper se fed tas ben cleat he se oxdunary rokes relating 1 i as a chatel aed 9 8 Ordinance is based on the English BEA and y, relevant to the 1882 Act $B Seceew 912) of the BEA provides that: “The rules of common law inca Meecha, sve in 30 far as they ase inconsistent with the express prin ' ‘continue to apply to bills of exchange, promissory noc, &. 3. As cxample of the general law applicable to chattels relevant to bil! "This is the remedy usually, but not always, available to the tre Es bill. Aw example of the general Jaw of obligations appli p feonsideration. In this case the Act expressly imports the (of the BEA states that valuable consideration for 2 of imerpreting a codifying statute has oot on Piggeries Lad v Christopher Hill id \Grdes in writing, addressed by 0% ithe person to whom i future time a sum ceria these conditions, or winch Yeis mot a bill of excinany ‘order to pay is called > is thereby ordered \0 § Hl payable to order ' Pa¥ee (or of a subsequen 1Definition o apleted by delivery. The pe aes n 10 whom its indo OF exchange 503 he Dil eat A bill payable " abil wi inndorsec indorsce of ated the ofapill ot parties fo the instruments 1 within the statu should help you identity har ntion pigure 1 Bill of ex: Fitzwilliam College Cambridge £100 (On demand pay o Leonard Sealy? or ordr the sum of one hundred pounds For and on behalt of Hooley Holdings Ltd! To Corporate Capital Lid? Steatherne’s Steet h Us London ‘eoley Di goste: Notes 1 The ‘drawer’ 2 The ‘drawee" 3.The "payee" (when the bill is delivered to him he becomes the first ‘holder’) Figure2 Bill of exchange payable at a future date Fitzwilliam College ridge 1 January 2008 ‘At 90 days sight pay to Hooley Holdings Ltd? or order the sum of ‘one hundred pounds for value received. For and on behalf of Hooley Holdings Ld," To Corporate Capital Ltd? StCatherne's Set k Hey Director508 Chapter 16 Bills of ex seapty with all Be FOPUTEEN SEO ng 5 An inserament mast © wins to be a bill of exchang yy the drawer to provided funds are a pala gtd ‘on any particular material : i we to be draw a joes not have Hoque being drawn on the side of a cow a her an electronic COMMURICALION, Such as, Minigame Os Sons communication and storage Bar cae | Powe: sete wien of bill of exchange ins 31) of he BESTS ss is sptance sar Fanor be sasied by electronic communications (urn Ga) scope etait te Law Commission in ts Advice 10 Governors 2 estat we 89 Eommerce-Formal Requirements in Commercial Transactions Decean | Satna L- para 9.) Tem aeoter obstacles that would have to be oveconee sae tes fac possble fo have an electronic bill of exchange. The funct RS Of a hae note (Nova exchange could be replicated electronically by way of a series of coma” A sum certai enforceable promises to pay but those promises would fall outside ibe Gincing the cu c- Exchange At 1882. Such promises would not therefore provide these pad with terest $3 shichthe Active tobona fide purchasers for value, aStatutoy protege Exchange oF 3 (3 cannot be created by contract alone (Law Com, above, para 9.6). There woul a2 be the problem of ensuring thatthe holder could not tansfes the vane + Toor tothe orde bill of exchange to more than one party (Law Com, above. pars 97) tobeare the pares * Addressed by one person to another If the drawer draws the instrumes certainty (BEA. s 7 ‘himself, itis nota bill of exchange but the holder of such an instrument nes eeeecures of the C option of treating it either as a bill of exchange or as 4 promissory note (BEA 5 7(2)). Where t $ 5(2). The instrument is a bill of exchange where the drawer names hiner fee” the payee 8 Piaiasite *cash o Signed by the person giving i The drawer must sign the bill personally orth essed person or an agent. A stamped facsimile of asi Bank Lid (1963) | a would appear to b Burr 1516), as isa Co Led v Housing and Tower {1893} construed as be drawer’s clear int whether an instru 10(1) of the BEA? ea oe OF(b) in wien Ressed C0 be payable on dean. # in whicl $11 of the BEA, a bill is payab no time is Finite Suture time By s | | and: (a) whic EU peyton demand Fes | such an instrume! ee s for payment is expressel 6 193; R v Rand sc ay Rv Randa to be payable a a fined nc °% determinable future time: aaa \yself or order’ | Para 144: EP Ell edn, 2002), p 34 1 Para 3.05). tn Pennell (1902) :Hate 06 HOU FAK thay option of paying before ig jatalony following Witamom yale yy (1962) 25 MLK S04.) Hider defeet MEA, 14) Wy 2 506A hh OY 8 CR. ’ nad 40 IOtUTHON expe AW Hh PPEMNE Of the « if Conn tal vip Weel «7 between the rd cca W bill Of exchange payable” effect of my aking the ty ile Present HOF HOE Can inetrun arene Naniyhuai hank the Court of Apr i Held the instrument ACCOPLANCE/ IED. This hua 7 after the dy a afied pe nce ft Dill of exchange Fachange Hank \ Debenhams ( Tithe Tana Lordships aio enatvey oaQh) 411979) Lye sek that acceptance of bil nox pre i tated hat ws payut WAiKed period af , sect ested (without decidiny ns whieb une iit specified day, cured any uneston st dat of matty othe bi mT 8 OFigtinally drawn. Alt le wwote (Novaknit Hellas SAv kan paid with interest, or by stated ineuan th exchange or a 241), Ti orto the order of @ specified person or tw bearer Where 4 bl tober the payee mote ned ore hear sb sqrialoty (BEA. $7.1). Payment to he holder of an office forthetine ‘Treasurer of the C ridge University Law Socie ) is permissible (B # 72)), Where the payee isa fcHions or non-exven pace eek BER. {reuted as payable to bearer (BEA, 7(3): see below, p507). An instrument den Payable 10 “cash or order’ is nota bill of exchange, as it is not payable te a specified person or to bearer (Orbit Mining and Trading Co Lid v'Weamanace Bank Lad (1963| | QB 794, CA). But a bill drawn payable 1o “cash or bearer would appear to be a valid bill payable to bearer (Grant v Vaughan (17164) 3 Burr 1516), as is a bill payable to °X orb (M K International Development Co Ld v Housing Bank (\99\\ 1 Bank LR 74, CA). In Chamberlain v Young and Tower (1893) 2 QB 206 an instrument drawn ‘pay order’ was construed as being a valid bill pa ‘1o my order’ $0 as to give effect to the drawer's clear intention to cre otiable instrument, It is a moot point whether an instrument draw ‘or order’ is a valid bill. The words ‘or ‘order’ negative any inference that itis payable to bearer (ct Wookey v Pole 1820) 48 & Ald 1), Despite « number of early nineteenth century cases holding that uch an instrument was not a bill of exchange (R v Richards (1811) Russ & Ry 193; Kv Randall (1411) Russ & Ry 195), itis generally accepted oe instrument drawn ‘pay or order’ would now be construed as payable tnyself or order’ (see Chalmers and Guest on Bills of Exe nase) peel an para 144; EP Ellinger, ELomnicka and RJA Hooley Modern Berting fay edn, 2002), p 344; of Ayles an Bills of Exchange and Cheque MU Wallorgcnd Para 4-05), In the Scottish case of Henderson, Sons & ee on “= Pennell (1902) 40 S1.R-70 Lovd Traynor treated an instrument drawn 'p ‘nder and foreign curren » though required to b ts, OF wecording 10 Mained as directed on the bill (BEA. 1 indicated rate ile Of exchange to be a$06 Chapter 16. Bills of exchange "as a promissory note. However, the issue way Chamberlain v Tower and Young and in North and So el an National Provincial Bank (1936) | KB 328, H Insuran An unsigned document cannot be & bill of exchange bu though failing to comply wit ll the requirments of Nt Sieg. converted into a bill of exchange where the si the Be, {an indorser delivers it to anothec person in on. completed by him. Such a document san inchoate" isan dea takes deivey‘an inchoate isrument has prs ace saa, Rep eonpet il and wo retity any omision of any material pt the amount or the name ofthe payee (BEA. $201) Innere when complete © enffceable agains «person vs Yost prior to ts completion, it must be filled up within areasorce sca 8 accordance with the authority given (BEA. s 20(2)) New teed fo encourage the marketability of bills of exch consideration (e a holder in due course, that person siey en anyone who became a party 10 it prior to its completion sane thi the il Was not completed within a reasonable tie or nace authority given (BEA, $20(2)) ew Een if he Holder ofthe il cannot ely onthe inchoate insane set out in $20 ofthe BEA, he may be able to argue tat the pone negotiable instrument in blank or while tis otherwise incomplete ot Se denying the validity ofthe completed instrument agnns him ihe heen dewriment i elince upon it Lloyds Bank Lid v Coote [1907] | KB sea Wien and Meson y Pickermg [196] KB 422, the Cour of Appear that his type f estoppel was confined to the case of negothlc means achegue which had los its negotiablity because ithad been crossed ntmegaes (See BEA. s 81) fell ouside is ambit (cf Mercantile Credit Co Lay Roatan 2 QB 242 at 274-275, 278-279), time and ‘ot surprisingly, hy nee the ps Where it pga 4 Transfer of a bill of exchange We have already seen how the payee of a bill of ‘exchange payable at a future tine may discount the bill, ie sell it at a reduced rate, before it matures in onder to nie immediate cash (see below, Chapter 15, Section 1 and Chapter 16, Section 1), The Payee must ‘negotiate’ the bill to the purchaser and give him legal title tothe in Payable under it. The same bill could, in theory, be negotiated many times downs chain of different people, for example, from A to B, from B to C, from C woDet By-s 31(1) of the BEA, ‘a bill is negotiated when itis transferred from one pest to another in such a manner as to constitute the transferee the holder of the bill. 1 this section the word “negotiated” is used to mean “twransferred’ , whether or notsit? transfer is free from equities of prior parties. The actual mode of transfer depen! whether the bill is a bearer bill or payable to order. (a) Bearer bills i Bearer bills are transferred by delivery. ie through the transfer of possess0 be actual or constructive, from one person to another (BEA, s 3 1(2)). A bill of ex 4s payable to bearer in any of the following circumstances:+ When itis expressed vo beso, 1 When the only or last inde 2 sement in bla be fccurs when mn indorsee (Bl he ent which oceur mn Sement in blank by the indore imtoniement by te sce (Prichard) figure Back of bill of exchange reproduced as F as Figure 1 Notes 4 Special endorsement 5 Inorsement in blank, Where the payee isa fictitious or non-existing person the bill may be treated as } payable to bearer (BEA, s 7(3)). By virtue of s 34(3) of the BEA, this provision is extended to the case where an indorsee under a special indorsement ig fictitious or non-existent person so that the bill can then be treated as haviog been indorsed in blank. The next case is the leading authority on whether the payable at a future time | payee is fictitious, jatures in order to ris: ter 16, Section 1). Te n legal title to the sum ed many times down? Cw Bank of England v Vagliano Bros [1891] AC 107, House of Lords Vagliano Brothers regularly accepted bills drawn on them by their foreign correspondent in Odessa, Vucina. Glyka, a clerk employed by Vagliano Brothers, forged Vucina’s signature as drawer on a number of such bills. The bills were drawn { Payable to the order of C Petridi & Co, a firm carrying on business in Constantinople, | Which had been the payee of some genuine bills previously drawn by Vucina upon f Vagliano Brothers, In ignorance of the forgery, Vagliano Brothers accepted less bills payable at the Bank of England. Glyka then forged the indorsement of C Petri € Co and obtained payment from the Bank of England in the name of a fictitious indorsee, The issue was whether the Bank of England was entitled to treat the ne as Payable to bearer and debit Vagliano Brothers’ account with the amoutt of Het Acceptances. The House of Lords by a majority (Lords Bramwell and Field dissenting) ‘eld that the Bank of England had been entitled to do so.have been bills whose n view of the the less $0, i person, they may be treated 2s indorsements are inoperative no Bros, it On behalf of Vasli payable to bearer unless the acse contended that nothing but person, I donot think that : ‘Before the Act of !882. Bennett v Farnell ((1807) } 30a order of the drawer clittous person wast vor his order, is neither ne? circumstances $7, sub-s 3, enacts th16 Bills of exchange son Chap vse sinesnlanes al 2 ae elon ora cn catia cta re we he nae inset oiaher aye intending a person eeayment, and i ne ring he bill ob ema i ine Cason why this distinetiong hat in the one vis not, But do n0t thi tive rights and libiliti i here is this Mween the 1W0 E88e difepossible, whist inthe ote reen the respec name pa a me a te reasonabley and Holes forabandbe Hable othe vin ae a nei oon apply only wher of the aa te payes is 8 worexistence? Lake i t0 Be < ‘word spayee” must em ofthe bil: for of Course person. Where, then Jear that by the by the hypothesis the payee named receive payment isi cr had prayeenamed on the there is no int Mult be made to any sue is so named! ut te intention hat Ne sha ge to say that shal person’ kink not do notin a oval existence. When We SPE no real existence, ‘of prevending’ ty used tod it which has no ik of accounts. We dO the entry has} reat which itis not ~thatit isan fe forthe purpose resented by it rest ipclusion that, whenever the 20, inserted as thal ely, withou that payment shal fictitious pers caning ofthe’ fe who has n eto bearer la wobel took place whichis have arrived at inserted by way of pretence MEN imeormity therewith, the payers raat ofan existing DErsOM, OF OF ‘lawful holder as pays ar dering te case of abil draw y the person wh oils which have givenise 10 hit titigation were: Ms is name being forged by GIN 1 think it What this made any difference pills must, under nst the at pavebeen drawn bY VuCHTa: ne Y ‘they bavel twa fictitious the meaning of the statute, PdOnoY think itis open vay, as against the acceptor De mie payable to bearer. in every cas oon so treated if Vueina had erate nem. Hime presenteases Vote pls and inserted the name of C gi de Co-as payers as a Mere PRESS uch persons coreceive Payment ior tows from what have ssid thal have be Sopsis whose payee Was a icitiOUs BETS ‘and do not think they, the Tess so, in view of tne circumstanos Ms Ber which the name of C Petri name b tease, be treated DY {have hitherto bes toitas drawer, whilst Avho purported tobe the dra ‘on behalf of the e5 fe acceptor, be ta person within ve bank, it was pointed out that thes ten: On behall of th ae face of them, were presented Lord Macnaght duly accepted and regular ‘and complet frdue course; and it was said that F hough no doubt atthe time they WE infer, and to be duly indorsed bY Ine Pavey vet when itturms out that the er they may be weated a5 payable (2 Wearer, and so the payment iS} fndorsements are inoperative ‘On behalf of Vagliano Bros it was contended that a bill payable aft ayable to bearer unless the acceP i, proved tohavebeen aware of he i Prmtended that nothing But crest “Fhe imagination can propetly Be: mn. Tedonotthink that either of these rntentions on behalf ofthe respon efor the Act of 1882, the law NN to have been, as laid down BY Bennett v Farnell (1807) 1 Can 1 30 at 180), that “aill of exchange ms onorhisorder, isneitner nell payable othe order ofthe drawernoe be shewn that the Tiroummstances of tne Payee DEINE S fictitious person was ayer isa fictitious ‘The Act of 1882.5 7,sub-s 3 enacts that, "Where the P set bearer. Asastatement ‘of law before the bill may be treated as P2Yanit ene ls carne Before Vay hy eine de feitions, One and all hey wor Pei c el perv for whan these ames were ened tone ne ed Hatsbary LC and Lond Set ebourno, W ho grounal that Vaghiane edhe Hank spon hat Vago Brey ha se nga ante bank was otto be hell response ortho Hower pei opinions Lord Halsbury LC and Lord Wathon, together th Lava her with Lond Monts, hel that teas too interpreted as interpreted by Lords Hernehell 4 Macraphten.) NoTes AeThe only genuine signature on these “ils 5 acceptor. The drawer’s and payee's signatures were for 41) of 7 Bites wre craver's igritucs(rapponr nth Ulan sok tad aiegoesions Fills they could not fall within the statutory definition ofa bill of exchange. Thi tras recognised by Lord Halsbury LC (at 116) and by Lords Watson (at 134), Macnaghten (at 160) and Morris (at 162). As s:7() ofthe BEA states that the bill may be treated as payable to bearer’, the subsection would appear to have litt felevance to the *bills’ in the Vagliano case. Lords Watson (at 134) and Macnaghten {at 160) stated that as the instruments were not genuine bills of exchange, » 103) wa fotintended to apply to them (see also JR Adams (1891) 7 LOR 295, pp 295-296) Lond Halsbury LC (at 116 and 120) overcame this difficulty by holding that Vagh Brothers, ax acceptor, were estopped from denying that the instrument was a valid bill, Lords Herschell (at L54) and Morris (at 162-163) appear to concur with th fiew, The estoppel operates at common law and prevents he aseeptor from ase Gainst a bona fide holder for value without notice thatthe drawer's signature os hot a statutory estoppel under BEA, x $4(2)(a) —ean you see why?), The will operate against the acceptor so that the instrument, upon which the Ps signature has been forged, is de med to be a bill of exchange, Section 7(3) then treat the bill as payable to bearer if the forp did not intend the named to receive payment. ‘of utmost importance when deciding whether anomalous in a case like Bank of whilst such emphasis on drawer's intention is, therefor is fictitious. That this should be so seems Wy Vagliano Bros, Professor Elinger observes tha of the drawer: le in the ease of cheques in which th vibe mam pany tobecharged inher TE changs hs ofthe Vagliano case apPP Ee er fhe aceptor—cB the etenrof bill wor deters te enor - 1 is difficult wo see isdishonont the main obligor is the acceDto"ills of exchange 10 Ohawer 10 Bi py the sntention at ware be guided t ne vou ear rome docs nt even ame cau te over to nay te hil is given he simi Vga case, bythe ace i fn, 2002). 9 cans that ifthe drawer does ining ans mie that payee fs not flottious, even though ate g on the cra A. Focusing eres “ Saree co drawing the bill in that way, Sy BEA and remains payable to order. This was held ta, have been fraud outsides 7) oF the in the following cases. : mn v Hughes 1905) 1 KB 795, alent agen | a Knoarn customers and persuaded Vinden, his employer, at a well kno in fact owing 10 those custoyl@ tures and sold the chea AMES 10 Hyp ough his own bank account, gies | Na bi, fa fraudulent clerk made g + Int Sarenariee era Ses pe ark f ughes passed the cheques emuree eds ear nies hk ssn ved hy proceeds pl eden 5 e signed the cheques as drawer anp se money (0 is customers when he signed th aod et | those customers t0 receive their proceeds. So far as Vinden w 8 concern « 8erted a a me Wen Could, there ¥¢ the clerk's fogs effective and did not entitle Hughes tp the names of the customers/payees had not been in pretence and, therefore, they were not fictitious persons, Vi recover the proceeds of the cheques from Hughes beca indorsements were wholl payment of those proceeds ‘ + In North and South Wales Bank v Macbeth {1908] AC 137, White induced Macbeth to drawa cheque in favour of Kerr or order, Ke Penson and Macbeth, who had been misled by the fraud, intended him orange ihe proceeds ofthe cheque. White then forged Kerr's indorsement and yuu preci into his account with the appellant bank who received paymemt af é Macbeth sued the bank for conversion of the cheque. ‘The House of Leah ty thats 713) of the BEA didnot apply as, although misled, Macbeth intended fe, oc his transferee to receive the proceeds of the cheque. This mean the cheque nd without Kerr's genuine indorsement the bank wasat that time 8 forge receive frauduleny FT Was an existing In Vinden v Hughes, the employer sign! K merely induced him to do so. But whet ith the intention thatthe nam x ployee's intention be atrbued® Manufacturing Lid v Canadion Imperial Bank of Comme” 3 (Supreme Court of C. Joye ne . of Canada), a bookkeeper employ ; aaclated companies was authorise ‘0 sign cheques drawn on the compi® aiperiod of time the bookkeeper Signed a number of ete Io Faer he eamPanics, but without the intention se id Limo ee nesPet Forged the indorsement ofthe! pai tan ne of her accounts a1 the defend: ud the companies brought ay issue arose as to fence to the claim. The bank Ce Were fictitious and the cheques insurance to cover approach, but it the Privy Coun AC 80, see precautions int presented to 1 majority's decision 196. S. The intention of the drawer may ha’ to the drawer. that p. in Clutton v Attens induced his emplo) fepresenting that a done for Clution. T the name of Georg Value for them in gc 5 7(3) of the BEA t Son were entith abruptly that ‘ith: instruments the na Cxisting person’. | World ca maria called Geortion ion of the drawer mae account the cheque is drawn, which nee « sie intention ofthe Signatory ofthe cheaye Soe foie senalory Tay Be One andthe sams pans and IW drawers and it was to be pre ) so pe drawers an Presumed that they intended dh ie ecm {ntended the named payee fee ticoihe companice theo ookkeeper could not be igecting mind of the companies. La Forest and MeL achieve oesetibed as the / sipough the bookkeeper acted beyo o the companies int for th igh in f her actual a enting minorit authority to sign companies, nd the ambit oy Mpqred and signed the cheques, the inane al authority when she meted party she would have had appenece mea seclowied god slaning offices or ae fai cheques a he was jusfied their decision on policy grounds arguing that by Recon ucee® also Ofte actual signatory there would be a more efficient anaes eimtention between the drawer ofa fraudulent cheque andthe collecting bank cspesatly sess | itisan employee of the drawer which perpetrates the fraud, asthe senleer tne te est position to control fraud within his own organisa agg 8 insurance t0 cover the loss. It is submitted that there is much to commend we, te f approach, but it should be noted that similar policy arguments were rejected ty Been} privy Council in Tai Hing Cotton & , a mi of loss sn | Lid v Liu Chong Hing Bank Lid {1986} hei AC 80, see below, p 672 (a customer is under no duty to take reasonable loreceive precautions in the conduct of his business to prevent forged cheques being nt and paid the presented to the bank for payment). For strong persuasive criticism of the payment of, | it majority's decision in Boma, see B Geva (1997) 28 CBLJ 177, especially ppl92 of Lordsheld | 196, $. The imtention of the drawer is irrelevant if the payee is non-existing. For example, the drawer may have intended the named payee to receive payment but, unknown tothe drawer, that payee may have died before the bill is issued. The problem arose in Cluton v Attenborough & Son {1897} AC 90 where a clerk, employed by Clutton, induced his employer to draw cheques payable to one George Brett by falsely representing that a person of that name was entitled to payment for certain work done for Clutton. The clerk obtained possession of the cheques, indorsed them in the name of George Brett and negotiated them to Attenborough & Son who gave Yalue for them in good faith. The House of Lords held that as the cheques fell within $7G) of the BEA they were to be treated as payable to bearer and so Attenborough Son were entitled to receive their proceeds. Lord Halsbury LC noted rather -muptly that “it has in this case never been suggested that on the face of these the name of George Brett is anything other than the name o! anon &xisting person’. Despite the possibility that there was at least one person s, the ‘George Brett George Brett when Clutton signed the cheques, the US0'et St ee did not exist because there was no person of that name #0 Oot lutton. Clutton did not know that Peonseab ees ‘drawer knows thatthe payee does not exist then fe ano att le to him. In these circumstances (eg a cheghe SN BS tyee will be both a fictitious and non-existent pi 4 aamneva I AMS EaEE1 10. Bills of exohanse practic! deren Pp exactly te I yh S27) oF the BEA treat Pe si as 6 7(0) of the BEN Treuvents te elaholly inoperative. THis meng ‘hg oe a amtorce esanatte efores not a WoIder” within he 8 wi sina Dar ne BEA. He te the possess of bearer i te orem a older” with eT pays such holder Besa good San entorce the bill. and a 96ST payable to order, payment to gpa saute So the BEA. Where 2 Forsement wil mt consign fav acqued Rr eg holder and 0 Bas ot been hy 1 an nso sceptor's bank pays someone who ig nol Se as reuired of ang the acceptor a a Safdar its customer's a thin its mandate (because within its ma eee at en it acts in breach of man, ood discharge then it act “as a nportant in Bank of England y yi out, This explains he bills in question were payable ga gras for the bank to establish that the ‘ ver hn Bras For the pa to's signature had been forged, only if the bill way Panne Given that the payee’ bearer could the acceptor its mandate, But see JR Ad: discharge of Vagliano Brothers wa was a forgery m his liability and the bank be discharged from his liability wri jams (1891) 7 LOR 295 who questions whee arrelevant issue given that the drawer’ ey," stnats7(3) of the BEA is permissive and not peremproy ny TUemtaaemiucalienytotreaed tepayabletorbctrer Winey eee therefore. to draw a bill using words prohibiting its transfer, or indicating ay intention tha it should not be transferred which prevent the bill being wea payable to bearer under s 7(3). For example, a bill drawn “Pay X only’ would be treated as payable to bearer under 5 7(3), even where X was a fictitious org existent person, nor would a cheque crossed ‘account payee’ or “account pre only’, as such a cheque is non-transferable under s 81A(1) of the BEA QUESTIONS 1. Ifill of exchange is drawn ‘pay cash or order’, is it treated as payable whew under s 7(3) of the BEA? 2. In Vinden v Hughes the clerk used the names of existing Customers as payee’ And * 7(3) of the BEA was held not to apply. The loss occasioned by the cles fraud, therefore, fell on the third party, Hughes. If the clerk had simply invenl have a kiting customers then s7(3) would have applied and the Ws val have fallen on the employer, Vinden. 1s it reasonable that the third party's igs Fete get Pon the nature ofthe mibrenresentation yee by the person has induced the drawer to issue the instrument? If not, how should the third pi’ BE Leap, determined? Should they turn on the fauh of the drawer? (se the is pi Laskin CIC in Royal Bank of Canade x Concrete Column Ci 1961) 96) 74 DLR (35) 96 tee Ae ane lum conned McLachii 7 4 <; also the dissent of 2 2 t (1997) 140 DUR a Se saree ¥ Canadian Imperial Bank of Comm is payable direction For examr and he ins to bearer inde (Grd ed Benning Sheppat “indorse payable of such within Howey oman i (Cm 6 there : remait Appe! 1990) 6, pat Bys3 value wit! had in th indorsem position of prior indorser lake the the date 14.CBN (c) De Under: when ¢ that it,ball fs Payable to onder f me le ets ONDITINR Cranston a Nog. as the bi a Hag i kn in a mteronly OF last indlorsement on the eee When fe ro bearer) ane the holder inners abuse an hereto: i panto Pathe ITEC OL th inverts above the indorvement In b tom ine indorsement in Blank in ‘oF some other person FE a ee chan ate & special indorsement (MEA. © al porerample, Snveried back into an cee Bn rigures | and 3 ecm For ext be converted back into am oder bili Prichard tatoo aah inserts the words ‘Pay R Hooley or order’ above Prichaa eine signature. I and he econ Sota : Sees ats mera rier ermal nt EP Ellinger, E Lomnicka and RIA Hooley Meader Banking Lar fpdorseme non, 2002), p 343). However, in {Grd edn, 2002), P Miller Associates (Australia) Pry Lid v seco te epee seman PLO) TALK Sh dG a New Sah ae Sheppard nent’. Sheppard J appeared to be of the Spdorsement’. Sheppard J appeared t0 be of the opinion th less of the imorepearer can be ansfered by mere delve. the sigatue of holt ae abil is relevant to its tanste cna TUR ester et treet of su fe meaning ofthe Act (ef WJ Chappenden (1981) 35 ALY 135 137) wih dhe holder's signature will expose him the same Vibiies impos My How adorserunders 55(2) (See RM Goode Commercial Law (2nd ed 1595), 135, fn 38). The Report of the Review Committee on Banking Law and Services p53 B, 1989) recommended that within « new Negotiable struments Ast Md be confirmation of the view that a bill drawn payable to bearer fected by any indorsement (Ree 8(10); Appendix A, para 20.8 and 195)_As the Government's subsequent White Paper (Cm 1026, anew Act, itdid not adopt this commendation (Annex there shou! remains unal Appendix N, para 1990) does not envisage 6 para 6.11). The issue remains open. BEA, where a holder of a bill payable to his order transfers it for 1, the transfer gives the transferce such title as the transferor ‘ec in addition acquires the right to have the se circumstances the transferee is placed in the in action and takes subject to equities Dill he will be liable on it as an Bys 31(4) of the value without indorsing it had in the bill, and the transf indorsement of the transferor. In thes positon of an assignee of an ordinary chose Of prior partes. If the transferor does indorse the ‘rdperbut, as the indorsement only takes effect from that time, thet ansferee will faethe instrument subject to any defect of ttle of which he has become swat between the date of the transfer and the date of the indorsement (see Whistler v Forster (1863) 14 CBNS 248), (0) Destruction of transferability le inthis section) Unders 8(1) ofthe BEA, a bill is ‘negotiable’ (meaning, "transferrin hen drawn unless it contains words prohibiting (aMsIh inating nerton Bereta re rancrerae, the bill is draw so hat its mou ransS="S In aa16 Bills of exchanse 1. However. n0n-tra ‘514 Chapter yer can enforce i. Howere: 5 Sve xa Gea men 192711 KB ABC Lat: Ld drew a bill of exchange payable throe m " The Irish Casing oo ve Co Lad only the sum of £500 effective ya " After acceptance by 1 The bill was alvopy the drawers and transferred to the pl Spices el ‘not negotiable’ meant thas transferable, Lewis lc and gave judgment forthe defendants, The at 's0, then it is difficult to see how the plaintiffs in this c: in valid as between the parties thereto, but is not negotiable.’ Section &1 of ae rane rear negotiable: is in tgs limited to cheques, and cannot be can the words ‘not negotiable,” Cheques to aller the natural meaning. But its said tha those words “not negotiable’ masts Subject othe other words that the bill is payable ‘tothe order of the Irish Casing Co Las and Mr Murphy (counsel forthe plaintiffs] seeks, as I understand him to reconcile thn sy by saying that the ills not negotiable after the order has been given by the lsh Casing Coes and thatthe absence of negoiability does not exclude the giving ofthe firs order by te Casing Company. [am unable to accept that construction. [think that the words ‘not nepaune are affirmative and govern the whole tenor ofthe instrument. The matter then comes tot ne «ither the words ‘Not negotiable -Pay tothe order of the Irish Casing Company only mates whole instrument really no bill atall, some other and more limited meaning mos! be gee the words “To the order of the Irish Casing Company only.” The surrounding circumstances of the case support a view Which my brother Classes ‘suggested and which has been adopted by Mr Willink [counsel for the defendants, ts oe words “To the order ofthe Irish Casing Co Lid, only,’ are, so to speak, words of convesicx: ‘requiring payment to an agent of the Irish Casing Company, but do not, when they =! Subject to the words ‘not negotiable” amount to constituting the bill a bill payable to ord the meaning ofs 8 at al. Fry L¥in National Bank Silke ({1891) | QB 435 at 439) sas is inclined to think thats 8 divides bills into three classes - bills not negotiable, bills use onder, and bills payable to bearer.’ In my view, adopting that classification, this is! ™ 1 and must have Exchange A. may be carried out by libs” Y 10 be paid to some one as agent for or forthe RR and no more. In that view the instrument does 98° Merpretation. It remains a non-nege =Abi : Guest on B es : . BEA, S81) . PSA ons standard form bill of exchange does cunder 5 S(4) ofthe det in any AE ae bill att vemain so until ee BEA, $8 35 Jrawn itw otherwise: Ss pander. The Sawer Fads the words "8 pe different es Pay order’ and Would you blank piece OF P answer paper”fone payiTi te AHL ar rile WhO 19 in Porsensi ia pe Mie on the bill in his own name in 0 1 er einen, bu a et (n a soln ' ker a a i ae defect In tle (IK die 9 ge a do render 4 thief the holder of 4 s4o a he HA enc made 10.» (He In possession of se b Rd ity on the bill Di woul Ot Ea categories of holder: » mere holder Ee ate hints be courne and who is h “bola aiany trawl or egal affecting the Pill The rights of the holder depen fo wecepiNt holder otherwise than for value se. His rights ae limited. He can tanser qa ayiMent, sue On tin gg MeN is atheryan does A mete holder is nil through 4 holder in due cou sment and/or delivery, pre’ thvough indo hue and lve good discharge (oa drawee or acceptor whone py ness ofthe position of a mere holder wha not deemed 1 have done wt fence of absence or falony ty (the in due course, Buc the real we: himself give consideration for the bill, or i + 27(2) of the BEA), is that he can be met by the de ion, whether his claim is against an immediate or remote p ied at below, p 519), ferms are expla (b) Holder for value {he abilities ofthe drawer, aeceptor and indorserof a bill are contractual ina Section sree BEA specifically refers to their ‘contract on the bill Ths BEA, Co cnly that those persons must have the capacity to contract on tei (BEA, + 22) but also that consideration has been provided to; that ce BEY tothe ata PBA. 8 S4CT), S5CLNQ), (2a). The same precontian Hppiy oa make ry whens apctgagement on a promissory note (BEA, s 8) Ye been Duty whose signature appears on a bill is crime facie decncl® have be Party to it for value (BEA, s 30(1)), Phim” facie deem alle” has in f nined by s 27 afte for a bill may be insite! ‘ontract; (b) an ance! ion whether the bil BEA. Section 2 by: (a) ba 19494 2 Dav Tihink for nyse Wari and ate Matter. Buc the ca Jecided after the date Minich the Act gen Pf the defendant. 10 Tiability’ ought so Hiability of a third p 1," there must at iceedent debt be any distinction be between the bill anc relationship, there Grawer of the bill. party and on the ch Somervell LJ due from the make 0, in this case the p edt or liability fr inmy opinion, mal of a debt of a thir subs 1(a), namely plaintift has here Denning Ly an antecedent det be enforced ther contract.m title to the nsfer the bill in his own is otherwise vho does not ne so (under or failure of party (these al in nature. ill’. This con the bill q a future ony gable Hpility in ques Sime. As Maton axa ability in question must he a om the ba Fe eer the instrumen Nate MEN case aero, IsTrUMENY, and ot g the promt rig oma ce aver 7 Bas (198912 KB 727, Coe gp ms pans poe £350 TOM Olver and g Appeat ais retold his fiancee's sister, Mine eos im fee er, Miss Woodeush (Poa ang let and 8 eSUI Mss Wong yh dat fra Before the cheque was presented of Oy married and stopped her cheque: Wien Noo ae yoodeock contended tha there hag heen Sued BY Ol Miseded before Finnemore J, but Miss Wooger <2 oodcock sue che se for Eg 8 indict 2 ie © for £409 learnt that Davig F On the cheque, sideration for ut i for it. Oliver peat MR: Seton 27, 4b-s 1 fe Bi yeh et urns, snes crm Values EacRe® At itp any consideration suficientto supportasimplc cag ora by arty. Such a debtor Hiabilty is deemed valaele cose AP at ae ata tare ng nag NDI Conran hoger ee ince sttpin aie nee seer Butthe case inthis court of Crears y Hunter (1887 porter ane: re onl aes or iebsirelsble avin rejace chests Be pete stay tangent st ondly signs te een tn'eanteeentehrr A eda dons. Tic atanj ret pa asthe secede dt Fa eat be relied upon spying valuable conser ts Ui of tid past ome relationship beeen the ee ofthe il and he Bll ee a soar practical purposes ts iiao erhowheretn Fa in cas in ch rn salient enn or ar Beany dstntin ete ace Jeo abit andacsem wih resol a ea onary sense consideration sing from pT eaana iP bill, Otherwise the creditor might recover both onthe debt om te third party and on the cheque from the drawer. ill maybe ona Somervell LJ: . . . [T]he antecedent debt or riability in s 27, sub-s 1(b) is debtor Late due from eis, ie negotiator of the instrument and nop tensa pas a to iathigcone te plant eannotrely on (He cannots23: ES00 1 Crear Hamer debtor liability from the third party, therefore La ented oss CoS inmy opinion, makes itclear that when dealing ith ane inset Egoms2? ofa debt of a third party, consideration bas 0 be found ssh 8. Tec Subs I(a) namely, consideration sufficient 0 SUPPO TT smpl coms plkintf has here 1 show a consideration suficent (0S aise to oes not apply 1 AP ose Day Denning LJ:... Section 27, sub-s 1(0) ofthe At eae eth POR ananccedent debtor liability of a third patty. Ph is Beenforeed there must be shown a consideration contact. ie 079 fe Kees aITP ores rie 0 spot sme coat cout, sos Spe SEA fhe had pre lied request of Miss Woes iaer for value a ee ct A sree aay eT eraarme imgeesaes || the Courtof Apel Fund 79, where adavter dew» cheaue pay all \| Lady Lewis 1993] 2B AME UE or er parents, and RAVE 00 SK tothe coh ferric emotes whe Be em conndeaton for the chegue 28 he GMLeceday a | company had not BSR 6 (ae parents) and not ofthe drawer (the dayghye | eas that the employee eee ear from enforcing the parents’ debt. s | . 2. Certain dicts oF Pret and Denning L1J. He stated that the anteceden — expressed by Somer could be relied on as providing consideration if tg” ‘an order bill Ciel sceipt ofthe bill and the antecedent debtor fare*® yeni for £00% irda 8 1a come relationship’? Could it mean something other than biltoc f = Wate ea tn Bonn Sir 12d ies wae Bingen oF R the payee 00 a aye tiector of that company. Asaresul, the company was entitled tore tones ibe distr Apping the wider dt of Event i see Gpcight J held (at p 261) tht “there was such a close relations eee oercat on behat of the thitd party and the affairs of [the company nn otro pee ko elon he ct ht rea rs bythe payee). However, there now seems litle scope fa er ores die of Evershed MR by the English cOUns, whch aaa eloped the onhodox postion that the antecedent debi orks daisy to unde’s 2) cannot be that of a stranger (Oliver v Daves, shee Mk biernattonal Development Co Liv Housing Bank (1991) | Bank LR Tear 29, per Mus): AEG (UK) Lid v Lewis, above). As Professor Guest subs maybe justified onthe ground that, as between immediate parties [sce below, p51 consideration - whether present or pat - must move from the promise. (Chai and Guest on Bills of Exchange (15th edn, 1998), para 752). 43. Professor Goode argues tha, save in relation to a bill taken as security foranexsig deb, itis a misconception to regard s 27(1)(b) as an exception to the common sw se 4s past consideration (RM Goode, Commercial Law (2nd edn, 1995), p 538). Thss because it was established by Lush Jin Currie v Misa (1875) LR 10 Exch 1S3at 6 164 that a negotiable instrument is given for value when itis offered, and accepeh® Conditional payment of an existing debt, This leaves open the question: why si! the same rule not equally apply where the debt is that of a third party? By s27(2) of the BEA where value has at any time been given for a bill the 4s deemed to be a holder for value as regards the acceptor and all parties 0 Who became parties prior to such time. In other words, a holder can be a ‘bol! fialue’ despite not having given value himself and, relying on the satus aff!” hhim by s 27(2), he can sue a party to the bill who did ‘not receive value, Sere ar wo iTporat scly om te subscctio but nots rs cott LJ; Hasay ers Prmmediate” parties agreement (0 sel Meiroment. A ote paris, but F and E Moe E onthe bl Sec dnd not by a stra biter dictum of D: Diamond v Graham {19 To induce Diamond to favour of Diamond and Diamond made the I was dishonoured whe: argued that Diamond w: between Diamond and Danckwerts LJ: Prima f ‘nus is upon the drawer Which has taken place be of Exchange Act, which PePersons entitted ve the wy vy to the BHT 49 the nacre wo. ° ae 4g onder for yale ‘ value + vere ae _- < eee los Mest tow ‘or ander bill payable at a future date is ik able « re date is draw vas ia 8 for goods supplied to him by A. A, ae OY Aon B and accepted by B as = Broc fervalue.C then indorses it to as agift. Dindones te ban piasorses itto Poses y 712), F (OGRE a ee ral 4 pais fo the Bill who Became paris before Jones) can sve the acceptor (B) ad Seived no vale himself. gave value, including C who e : pa sivas wo important limitations on the operation of s27(2 a seni subsection to make himself 2 holder for eee eee : sof against an immediate party. As between immediate ane beta tom the promisee (Churcill and Sim y Goddard (1937 aoe | Sef Hasan ¥ Willson [1977] | Lloyd's Rep 43lat 442, per Rober Gott “immediate” parties are those that have dealt directly with ea eI szeement to sell or supply goods Or services. or to sacha ge alec A ocher parties are ‘remote’. For example, in Figure 4, and Dare nae ut F and E are immediate parties, which explains why F (a donee) ee | seKonthe bill Secondly s '7(2) envisages value being given by a party to the bill and not by a stranger. Nevertheless, these assertions must be considered against the biter dictum of Danckwerts LJ in the next case. Diamond v Graham [1968] 1 WLR 1061, Court of Appeal Toinduce Diamond to lend £1,650 to Herman, Graham drew a cheque for £1,665 in fayour of Diamond. In return, Herman drew a cheque for £1,665 in favour of Graham and Diamond made the loan to Herman. Later, Graham’ s cheque in favour of Diamond was dishonoured when presented for payment. When sued on the cheque, Graham ‘argued that Diamond was not a holder for value because no value hhad passed directly between Diamond and himself, as drawer. and the hange 1s resumed to be for value, it or rs for value, and the discussion ind the provisions of s 27(2) of the Bills be facie, of course, a bill of exc -of the cheque to show that it us has really revolved rouf whange f { ser 16 ils of 4 i —— ep ueheN ero pecans pane’ wer a apes i a ental te ete Ns oman The cen iad pe eM vance become EYP gy gent ich ie spe setion which appears 10 require | Mi ran na ua sven Diamond wen Dame mn be dsmised iy Mr Herman isc me which the words of There x mothing i he sub holderas long as value as . i... Here there clearly passed between Mr Diamond and Pi oc Waytat consideration given fr ab interme rs was abil anonconiioal order in wri considuston ws piven Mr Henman, “olde” s defined 7 : i possession of it." Mr Diam cs or indorseeof a bill ornote who is 3 the bill who acquired possession of it as the result ofthe consid: Qo Herman. Itseems to me that clearly he falls within all the requireme: 22 T should add that Mr Graham became a party tothe bill “prior which deals with delivery, in sub-s (3) says: ‘Where a bill is no longer in the possession of a party who has s j and unconditional delivery by him is presumed until the contrar 7 - Ms Tibber has argued, as my Lord has said, that one must not read ae ‘meaning, but subject to a qualification that it applies only where the consi. direcly between one party tothe bill and another party tothe bill I can see nothing inthe wee Which requires that qualification, and I can see nothing in common sense or justice whch max that qualification in circumstances (though they must be rare) such as ex Too would dismiss the appeal Sachs LJ: 1 agree. Not only has the defendant got nowhere near establishi become a party for value to this cheque, but upon the evidence itis abunciant!y cles © that thete was valuable consideration given fort within the meanine of « 2711 that the Value was given for it within th re le Meaning of s 27(2, ‘Accordingly the appeal mustbe dismissed. In Churchill and Sim » God " Goddard {1937} 1 KB 92 ie finmediate pares, the defendant isentited terre snes toe that there was nothing i af i 8 in s 27(2) ‘which tore “ wy the holder as long as value has been crven forthe U's interpretation of s 27(2) was suleequently doo Persons. ia Pollway Lid y s Rep 43] 1 Dancks weber valid co peis.a holder for ¥ holder for value fadoes not alter th have done 0 Mustill LJ’s comn acknowledged tha that he did not way its decision on th 3. Section 27(2) acceptor ‘and all hhad been given fi judgment that \ simultaneously ¢ is not clear from and irrevocable: that he received International D issue arose of th Staughton LI h case where a p Rights of a ho ‘tO sue on the | defences that Value, like a! founded on t capacity). Se Subject to the Soanected w _Persons emitted 1 the benets op n Pollway Lid v Abduttan sn hiivy gti ays Rep 481 ac 3 W978) Wi aon, om the Ht ga 1 rat nee DUMAWET tO undentony eH . i dE achaving gaa nylon aprorte Sento wri THatTey (19681CLI 196 ang gg se MS Scott (1969) 15 sndiamond Graham, Herma was 'S MeGit Ls ayy 2. adverts LI holding that Diamond waa Pa W the cheay pane 8 older weaite 74, CA, where, following insincere C2 atk UR ank drew a bill of exchange maui” fasing Bank dr abil of exchange payne fed Potent fae aepecustomer gave value for this bearer bill and he Been g 27) as holders for ita ane PiyK International could have eh Yeh didn inder 5 27(2) "Tye for valu Bank {199 accordingly. ‘The do theis Court of Appeal held tha eater, MK Internat Ustill L) also. divas ould However, Mi onal - he bil justil at p @ S 27(2) if the cust he me pot to be read as envisaging value by ) was: ue being provides fatherasa special provision, directed tothe position of aoe eer te ssteument fidoes not alter the requirement created by s 27(1) that some pargy sone Bane vale: But have done so say = sil LJ's comm 3: avalia Gaihe did not want any court seized ofthe action toepard his decision Hale {i decision on this ‘new’ point las forslasiog is were made at an interlocutory st literal assed 4, Section 27(2) states that a holder is deemed to be a holder for value as regards the orities sceeptor ‘and all parties to the bill who became partis prior to {the time when value quires fad Been given forthe bill). In Diamond v Graham it appears from Danckwers Ls jnigment that when Graham drew his cheque in favour of Diamond, Herman Simultaneously drew his cheque in favour of Graham. The precise sequence of events {isnot clear from the report. As Graham's liability as drawer would only be complete not | andinevocable when the bill was delivered to Diamond (BEA, s 21(1)) itseems likely sind thathe received Herman’s cheque, and hence value, before that time, However, in MK tion Intemational Development Co Lid v Housing Bank {1991} \ Bank LR 74, when the issue arose of the simultaneous provision of value for a cheque at the time it was drawn, Siaughton LJ held (at p 82) that *... It cannot be right thats 27(2) does not cove, the case where a person becomes a party to the bill and receives value simultaneously ske any other holder, has the right there is controversy a8 10 the certain. First, a holder for al’ defences, ie those Rights of a holder for value A holder for value, lil fosue on the bill in his own name (BEA, s 38(1)). But th Aefences that can be raised against him. Two things are &" Walle, like a holder in due course, takes the bill subject 0 Or sr contractual ‘on the invalidity of the bill itself (eg forgery ofa ec wise, takes the bill Secondly, a holder for value, unlike holder aa co orilegality t0 the defects in title of prior parties (such as fraud du ahold in with the issue, acceptance or negotiation of the —— = / ‘IT522° Chapter 16 Billy of exchange hin raster 8 hold get perl san i rat ers ol kes the bill subject to pera Foy peter ttle (Arab Bank Led v Ross | mal qa reas to how far a holder fo nt founded om th il ie py, ties, 4e those defence themselves (ep the defence ay 1 prior par erween the parties tl F the relationship bet underlying t induced Jelivery was Hi Hable to prior parties as between thers, tk HN 2 ae fer takes the bill subject to personal defences of priew Sat caregory of hole. tte course (the BEA is silent on the issue. Jue (but contrast B Geva (1980) CLS 360) for value (but contrast imme mote to the part sideration (i QUESTION : The Rept of he Review Commits on Banking Services / 6; ree (4)) recommended i Sly ceocrsid olnritesainildbesbolsned.one fet that the requ mecessary complications felt thatthe requirement produced unnecessary comp distinguish between the various types of holders and w = nates Wha ‘ns cme Review Committee have been referring to? Othor than the noc for considera hat evidence stereo sow tha a part oa bil ntendso enter ino ieah sa The government's subsequent White Paper on banking services didnt use recommendation on consideration (Cm 1026, 1990), aw and Py the need for consideration ava tice (pa, A test op W Co When use 4S unnecessary evi, é (¢) Holder in due course Pretact im due cours is in a protected and privileged position He holds he bl free from any defects of ttle of prior parties, and available to prior parties amongst themselves (Bi 4s prima facie presumed to be a holder in due co Presumption, the defendant must also from mere personal defence. ‘A, $ 38(2)). Every holder of ab the requirements for holder in due cour status, C "en satisfied. However, if it is show: + that the bill was drawn, accepted of negotia a duress, force fear, or illegality, then the claima nly benefit from the presumption of hlkt in due course status if h . following the alleged fraud or ileal value was given in (BEA, s 30(2)) Section 29(1) of th ler in due course holder who has taken bill, complete and regular on the Bstohac pl Fegular on the f (a) That he became the ae face of it, under the follow pile and tha atthe cme the n the title of the person who neg0t on seeking enforce a bi i 4 ill as a holder in due course + satisfy ea ents Set out in s29(1) of the BEA le Course must of any detect i Persone en ust be a wwies of Mem estas y Waring 4 ae Jon fraud » viscount Cave LC ers 06 of Exchane think that the nder th that tonless the fy bene Saivvery pea holder i Tmumediat by Fletcher M [On the issue of Dunferml Chancellor. L NOTES 1. Asa payee cani $302) of the BEA (27 edn, 2002) state any rate, reduce the Course. And it is s holder for value w acceptance of abil raised as a defenc and for value, if had notice of the d Goff Jin Hasan y Export v Bank of n the party sue: Chalmers and G 1049)adv Waring and ¢ and Gillow Ltd jr, es wee . AC OR. Re, \ Inview irae hegecan Ke up this i " aad fect that : t Moulton LJ ii we ~ ts heen accepted by the other m aie = the bit Senin svc it defences Chancellor. Lord Atkinson concurred gan sneer of bill ut tis > course eres shown 1.Asapayee cannot be a holder in due course, he cannot be deemed to be one under orce or £302) bf the BEA. However, the editors of Byles on Bilis of Exchange and Chea holder (edn, 2002) sta tha R E Jones Lid v Waring and Gilow id not speccals gality, any rate, redu nts of a payee-holder for value below those of aholerin due Course, And it i submitted that the decision did not affect te rights of the pes Folder for value whatever they may be" (para 18-36). I appears tht If ths Wt swing acceptance ofa bill is affected by the fraud or duress ofa third pansy, Thy fied a a defence against the orginal payee who as ike a , { and for value, if the party sued on the bill can prove (™" pee owed by Robert had Tadnotce of the defect (Talbot v Von Boris [1911] KB 8546 A eer ; was Goffin Hasan y Wilson |1977} | Lloyd's Rep 43 at ot poo dit Export Bank of Scotland 1994 SCLR 944, OH). NOEINN Ty 392) applied I | __pae pany sued and not the payee, as woul jn, 1998), paras 892 and LOU Chalmers and Guest on Bills of Exchange (15th em 1049). ——24 Chapter 16 Bills of exchanee te given tl ores, whey rok to the evgina pace by hath sircariomal See! Stahl und Biser’ cig 18 917, CA: soe below P ‘ regular om its face (Which includ, ‘be complete and regular on it inc (ii) The bill must be 60 pay 7 ‘of the bill stands as a warning io 4h, mA Sr ier a bill cannot acquire a herr’ "Olde. Moen plete if'any mi eial detail is missing, e8 the nameof the lincomplet ules ined pee sso ma inches a fe ee cee DEK Sa ae sd ey im cores Wi he aun Ge (E42: aoe nd trespass intoa holder in duc course (Glennie v Bruce Sms ops in 3268-260, and other eases cited in han nt Cae on il of Eng 2, 199) 25), The bootstraps nature ofthis approach makes it ung Stacove cee ih heepres wording os 25) ofthe BEA, at the holder to have “taken” a bill that is complete and regular on its face it he isto a holder in due course, This does not stop a holder completing the bil) nd the, negotiating ito ance bode ho takes ita a holder in de couse, by pat seem to prevent the first holder from elevating himself to that statue By $2 ofthe Cheques Act 1967 if a collecting bank takes fe payable to order (ie not a non-transferable cheque, such as one croseq ‘accoin Payee") without the cheque having been indorsed to it, the cheque will he Uteated as indorsed in blank and therefore, payable to bearer. Notwithstanding the on the indorsement the cheque is transferable by mere delivery and the Apapelder in due course (Midland Bank Ltd v RV Harris Ltd [1963] 1024-1025; Westminster Bank Lid v Zang [1966] AC 182 at 190), Wie, OF Value a chegye issionof bank can tae, 1 WER 1021 Irregular bill A bill is considered irregular if it contains a feature holder on inquiry. Fore that would reasonably put he ample, a bill will not be regul is iregular. lar on its Face if an indorsemen Arab Bank Ltd y Ross {1952}2 QB 216, Court of Appeal ae pee st ‘naming a Palestine firm, ‘Fathi and Fas ! pulses, Ove of the partners in that firm indorsed the ox d aan ays Nabulsy’ (the word ‘Company* being omitted) and discounted et ae ae bank. The issue arose whether the Notes were ‘complete and regular 0? led a the Arab Bank ed witha claim against Ross as holes ee Peal held that the indorsements We Arab Ban ‘Iders in due course. Nevertheless were hek a Id entitled to suc irclaim on the notes as a holders for vl® Court of Apy k were not ho eed with thei ae Persons ent ye the 6 . pe ie or et a. ee eat t re a joubes that the atthe literal Foe at. Yookine at ind regular i sifferent thi and an ind sais Porbesv Marsh Once ent by Eurrency. It should b to doubt? I would say banker than a lawye every day of every have not had to consid Slingsby's case ((1 ‘The Law N ifwe follow the custo that they would not ac if bill is made paya indorsement “Fathi they know, in Palesti different legal entity, Co (1906) 11 Com ¢ them. I agree with tt indorsement of the n The truth is, 1th and also in the intere: tosee that all the ind Tegular on the face Macnaghten. That have taken for the j ‘hanattractive ie Eee a cheque “account reated as, ission of in take it 1021 at put the sement Paysal notes | therm lar 0 oe we 5 Persons entited 4 1g The et gueston nd : gosnd Joubts that the "face: ct ne eteand regula ins “re set safer thing rom “Beiifeonc hand an indoscmen which pee Se ss there may be nothing aber cram face of Conse andy rea es tise a he yiueonard » Wil (1834) 2.Cr &e M85) pend ascent to paste ronan a Lente dle Henry (898) 22VLR 20 a Tm Cook & Son i indorsement irtegular unless the payee a een mthe fron ofthe bil. This ts what the misnome Sh isis afferent from ably. The Acree x from ity The etka sj Omihe onc hand Pe aes _ ool Reliaiginlclerattiiecrst parame loe rieas see, te indorsement is irregular. but riedon he on ofthe ile a rat regularity defence: oF ihe is gy dsc one hema el a Jer itin an assumed name, the ndors lescribed on the fron ofthe bl b as orsemeatisiequlerbuthe ab : a ably itis forged or unauwnzed Ths er sem Tey an unauthorized name which is substantially different from its entby one partner in that name does notin her panes: Krk yO a & W 284). It would be otherwise if then 1855) 1] Exch 166). ith from validity and from liability, th silty, the questions when A pill of exchange isi ne was substantially the sam Forbes v Marsh: ‘Gace regularity is seen to differ b fular? The answer is, Tthink, that its iregu her itis the indorsement ofthe named pay fe suspicion, Butifitis asked: When does an indosement give I question which is, a rue, beter answered by 2 of indorsemens every week, and ntency. It should be abov fodoubt? I would say that that is @ seaet than a lawyer Bankers have to consider the regula Bay day of every week, and every hour of every day: wert fave not had to consider it for these last 20 years. Se shy's case ({1932] 1 KB 544). ant is Founded on the custom ‘of bankers of the City of London on th sts in this caS© a 2 1 Nabulsy Compa od sense int of merchants, and we shal The Law Me ifwe ollow the custom thtthey would not accept he indorsen ifabill is made payable to “Fathi and Fayss indorsement ‘Fathi and F rfsy”Hthink there fs they know. in Palestine the many’ may be of Vit diferent legal entity, just asthe word Bank of Mi {C0((1906) 11 Com Cas 250), or it may ay pare them. I agree with the bankers that this 1"! ise indorsement ofthe named payee. It was, ther The truth is I think, that the bankers #07 andao inthe interests of their customers It We" toseethatall the indorsements on abil aren Tegularonthefaceof them: see Bank of England vr, Macmaptien, Thats some safeguard agains! Sue Havetaken forthe past 120 years at leas. and 140% They si that lrindorsement "they would ir view. Fo there signi Tsignificance. Ita) lv Exnibitand ely 0 word ‘comp Timited’ d0 ify a firm of m est ti mmm siete — ae ‘bankers: fore, imea something is wrong coupe wih wel ae include ‘constructive knowle the means of know Although Lu 2c" (See above, p 40) B fhe BE seh the a7 Notice and good faith ate linked. Faure wed fect inthe Tk iersationi L rr Pau of ick aris ot dishonest but delbecesy es Mustil LI (at 79) ' the mak » Jones v Gordon (1877) 2 App Cas 616, House of Lords worth To defraud their creditors, S drew and G accepted a number of 0 = : Four of with an overall f er pe Of£1,727, were purchased by J fort wet: that G was in financial diffcule bag Fefrained from cont, Ting knew could give him informations: Lords held that Jw a tide purchaser who could intitle as he ave KNOWN of the fraud acting certain peop Vi) The holder n al affairs. The Hou ake the bills free 10G’s finan P 518), can he estat become a holde Heppbebura: (My Lords, think 4 WEES sayin conicecs oc aane Development ¢ eUEhly established that if value ba UES Innere cnet thought, TE Wascarcessness, negligcns oF Foolishness in not guano 8 Ot EO himsett' s IIR pect that on lt rorentitled to Persons of exchanee smstances Which mig were erat there was dishone thee en o mnt 75 tp hat here was shone 1 asad SS is case 4 he e dese Byhh o se a party who's 0 jorsement in Arabic Ie e ont in the <6 ankropt its nec Ould eat Brant Breen we a Sree te overdue af the time of Sekai ieee Tr dy) ove PEE py waecaen = the day it falls de. A dee Length of time, which is a question of fet 8%, Serato = 1a refraine as sn stl ote iam sed, not 01) " tewour nay be fr non-payment of fOr NON-CCEPLAN. What con The icone flow qrords 0" Hagar and Gord (8) The holder must have taken the bill without notice and in good faith Section 29(1) of the BEA contains separate requirements that | “sed th in the tile ofthe person who negotiated it; and since the repeal of the (6) the holder takes the bill in good faith much was given for a bil f | proved against the estate i The expression ‘notice’ ins 29(1) means either actual knowledge ofa fact or suspic foanother fora nominal that someting is wrong coupled with a wilful distegard ofthe means of knowles, Although think tha cov. {toes not include ‘constrictive knowledge’ (see above, p 40), By s 90 of the BEA, with the apparent va the expression ‘good faith’ is defined in terms of negligence. Notice and good faith are linked, Failut of the transferor because of lack of care is not dis! blind eye to suspicious circumstances is, the holder's honesty and not hi whether of not it was a be re 10 discover a defect inthe tle InMK International Deve honest but deliberately tuning Mustill LI (at 79) noted L Temay also be t the maker cannot comp! worth the amount of the is so trifling as not to b Jones v Gordon (1877) 2 App Cas 616, To defraud their creditors, § drew and Four ofthe bills, with an overall face vah Tknew that G was in finan Who he knew could give hi Lords held thatJ was not a title as he was deemed 1 House of Lords G accepted a number of bills of exchange eof £1.727, were purchased by J fori ined from contacting certain pee 1 affairs. The ie Ifa holder is deemed t Cou take he bills ree of Ree te. ud. (i) The holder must t bona fide purchaser who 'o have known of the fra become a holder in due Developm ent Co Ltd [Mly Lords, 1 si july Pte A Kien ee a coe F 2 that consider it Es be ay thought, albeit obiter ‘abilllofexchange, it is not enough tos self Aegligence, or foolishness in nor Povcs har ane bl was we himself but that he coser he case of b To not think ira ald happen o int ene ea Hue would have Found, not ud seat pees, think that Would not make a pecercand took it. I'he takes it int bout then I think that such eviden wer evidence be Bood evidence upon tng quan’? of Dlindness pedid kn that here was Something wrongs ok Wich anderingand careless, and so took abil of yeni PS 85 (i Natl would ently cr tee orb ay, ot whoever has 10 try the question, came tg ga ah ccumstances se Hang andcaces Pt athe musthave had game toeh a he i thathe refrained from asking questions, not because he cot ee WAS Something yon st blunderer o cae Fe Oa stpi hat ¢, iflask questions and make farther inquiry, it will no longo Pee ETE Is a a ni as Thaver clered to ake iis the real one when : al one, whether nats the Das) Ronen et he Ought not a hay as not honestly ae thing wrong a | _esubitied no only by good sense andreaso, ay / a eliver aith (Los O'Hagan and Gordon delivered concurring judgments NOTE di ishonour for 4 paid £200 for bills with a total value of £1,727. This caused Lord Blackburn to ; 32 that: ofan note at 631-632 that since the repeal of the Usury Laws we can never inquire into the question as to how ‘much was given for a bill, and if [J's vendor] was in such a position that he could have : proved against the estate it would have been no objection at all that he conveyed these bills suspicion toanother fora nominal amount, thathe sold bills nominally amounting to 1-721 for £200, nowledge. Although I think that could not have been inquired into, yet the amount given incompatisoa f the BEA, with the apparent value is an important piece of evidence guiding us 10 a conclusion as to nd not his whether or not it was a bona fide transaction. a te ile | In MK International Development Co Ltd v Housing Bank 1991) | Bank LR 74,CA, ane? Mustill LJ (at 79) noted Lord Blackburn’ remarks in Jones v Gordon and continued: Hema also be the la that wher the ils given asthe prise o an indvnbleblitva themaker eannot complain even as against an immediate party that the obgainn ose worth the amount of the bill, ie that he made a bad bar ela mn — | 4850 trifling as not 0 be consideration at all: see Young v Gordon (1896) 2 (i) The holder must take the bill for value Fee potion re BEA (see Ma holder is deemed to be a holder for value under $272) 008 oa i and 0 518), can he establish ‘that he took the bill fo" vale AK: Aeration > Aholder in due course? Two recent pe Piva "74at 80, Musil ey Development Co Lid v The Housing Bank (19911 sourse did not have ee i atin ht albeit obiter only, that a holder in due COM Tsiver {199212 self but that he could rely on s 27(2).1n Cliffe” 4 "a2 5 3 3 7 ‘