Bills of Exchange

Bills of exchange have been recognised in international commercial practice for many hundreds of years.  The Bill of Exchange Act codified the existing bill of exchange legislation.  In this respect, the legislation is similar to the Partnership Act and the Sale of Goods Act, which were enacted in the same era.

A bill of exchange is an unconditional order in writing, addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time, a sum certain money to or to the order of that person or to the bearer.  An instrument which doe not comply with any these conditions is not a bill of exchange. It may nonetheless be a negotiable instrument.

Basic Requirements

There must be an order in writing.  It must be for payment of money, whether in domestic or foreign currency.  It may not be for goods, stock or even monies worth.  The order may not be for payment out of a particular fund.  It must be based payable out of the drawer’s entire assets.  It must be unconditional.  The time for payment must be certain or capable of being ascertained.

The payee may be named.  Alternatively, it may be paid to bearer.  If the payee is not named, he must be capable of being identified with reasonable certainty.  The obligation must be complete.  It must not be dependent on obligations in another document.  Another document may be referred to, but not in terms of the actual obligation.

An incomplete bill may not necessarily be invalid.  The holder may have authority to insert certain incomplete parts, such as the payee or a blank date.  However, this principle will not apply to an alteration of a material part. For example, the holder of an unsigned bill would not have the power to sign it, in the normal course.

It appears that a bill must be in writing and may not be in electronic form.  The Electronic Commerce Act does not appear to be applicable, notwithstanding the breadth of its wording.


The person who draws the bill is the drawer.  He directs the intended drawee (payer), to make payment at the required time.  The bill is drawn on the  drawee.  The person in whose favour the bill is drawn, is the payee. Strictly speaking, the drawer and the drawee cannot be the same person.  The holder may however treat the document as a promissory note. The payee becomes the first holder of the instrument.  A bill is issued when it is completed drawn and delivered to a holder.

The drawee does not become liable on the bill unless and until he accepts it. He accepts it by signing the bill.  The bill must be presented to the drawee for acceptance. By signing acceptance, the drawee undertakes to pay the bill on maturity in accordance with its terms. If the drawee refuses to accept the bill, it is dishonoured by non-acceptance.  The payee then has an immediate right to take legal action against the drawer, notwithstanding that the bill has not yet matured.

Where the bill is payable on demand, the drawee must pay it on presentation.  If he refuses to do so, it is dishonoured by non-payment. Once again, the drawee is not personally liable to the payee. He may be liable for breach of contract or defamation to the drawer, if he wrongfully refuses to accept a bill in breach of any separate arrangement with him. A bill may be payable a certain period after “sight”.  In this case, sight means acceptance. A demand bill is one payable on sight or on presentation.  If no period for payment is specified, it is payable on demand.

Contents of Bill

The place of drawing of a bill is customarily indicated in the top right corner.  This will show the provenance of the bill.  The amount stated in the bill is its face value; the amount payable. It must be stated in domestic or foreign currency.  It must be for a sum certain,  or which can be ascertained. The sum may be payable with interest.  It may be payable by instalments.  It may be payable at a stated rate of exchange or a rate of exchange to be ascertained.

A bill is not invalidated by the absence of a date.  This may be deduced from the circumstances.

The time for payment may be inserted.  The bill may be payable on demand, or at a definite or determinable date in the future.  The date must be fixed.  A requirement to pay by a particular date, does not qualify.  Similarly, a bill payable on some extraneous event or contingency is not  a bill of exchange under the legislation. The bill may be expressed to be presentable for acceptance at a particular location.  This is not an essential requirement, but can be made a requirement.

The signature of the drawer is essential.  A forged bill does not bind the party whose  signature is forged.  However, if it is later endorsed, a holder in due course may hold prior endorsers, after the forged signature liable. A bill may be signed by an agent.  However, the signatory will be personally liable, unless the agency is made explicit.

Assignment  and Negotiation

A bill may be sold, prior to maturity, at a discount.  If the bill has been accepted by a creditworthy counterparty, it may be transferred or sold to a third party to aid cash flow. The sale will be usually made at a discount, which reflects an implicit interest rate in the time value of money, between the transfer and the ultimate date of payment by the drawer.

A bill may be assigned in the same manner as any chose in action.  However, as is the case generally, the assignment will be subject to any rights as between the original parties. Negotiation is a special procedure (which differs from assignment) which makes the transferee, the holder of the bill, free from equities and rights to which it will be subject on a mere assignment.

If the bill is payable to the bearer, it may be negotiated by delivery without endorsement. In this case, the bill is payable to whoever presents this at maturity.  Provided the person who the drawee has acts in good faith and is no notice of the effect, he is fully discharged even if the person to whom he pays, does not have lawful possession of this..

Most commonly, a bill is payable to a named payee or his order.  This means the payment must be paid to that person or to a person to whom he negotiates the bill.  Strictly speaking, the word “or order”  are unnecessary, as the legislation implies the right to transfer the bill.

Endorsement takes place by signing the back and delivering the bill.  The endorser will usually write “pay [the endorsee]”.  This is a special endorsement.  Where the endorser signs the back of the bill in blank, it effectually becomes a bearer bill.  It is then transferable by delivery. It may be reconverted into a ordinary order bill, by inserting a name. By endorsement, the bill becomes payable to the named person or to his subsequent endorsee.

Holder and Holder for Value

The holder of a bill may enforce it.  The holder is payee or endorsee of a bill or the person  in possession of a bearer bill. A bearer is a person in possession of a bill which is payable to the bearer. A transfer by the holder gives title. In order to qualify as a holder, the person must in possession of the bill, and complete any applicable requirements in relation to transfer.  The holder should hold the bill in accordance with its terms.

There are a number of categories of holder. A holder of a bill who has not given value, has fewer rights than those of a holder for value or a holder for value in due course. He may negotiate the bill.  He may complete an omitted date.  He may convert the bill into a bearer bill. by endorsement in blank.

The holder for value is a person who holds the bill, having given consideration sufficient to found a contract or undertaken liability for a prior debt (notwithstanding that it is past consideration). A holder is presumed to have given value.  However, where it is shown that he has not in fact given value, he will not have this status.

A signatory of a bill is presumed to  be a party for value.  If value was given at any time in the past, the holder is deemed to have given value relative to the acceptor and parties who became parties prior to that time. Provided some person has given value between the holder and the person against whom enforcement is sought, he will be a holder for value.

A holder who has not given value may not enforce.  Therefore if a person draws the bill on another who accepts it for no consideration, the former cannot sue the latter.  Similarly if a bill given for value is endorsed by way of a gift,  the donee may not sue the donor. However, the donee may sue any drawee who has accepted it.

Holder in Due Course

A holder in due course is a bona fide purchaser, without notice of any defects in the title to the bill.  Such a party may take a better title than his transferor.  This status is a critical aspect of negotiable instruments. The holder in due course is not affected by the fact that a predecessor may have been a thief or have obtained the bill fraudulently or illegally.  The fact that the predecessor did not give consideration or breached contract is irrelevant.

The holder in due course is one who takes the bill complete and regular on its face.  He must become holder before the bill was overdue and without notice of having previously dishonoured  (if this is the case). He must take the bill in good faith and for value. He must have no notice of a defect in the title of the person who negotiates it to him.

A bill will not be complete and regular if any material particulars are omitted.  The completion of the details under an implied right to complete the instrument, will not fulfil the condition. The date and place are material parts.  The fact that that the bill has not yet been accepted, does not make it irregular.

There must be nothing with the circumstances which causes suspicion or casts doubt on the bill.  If there are any apparent discrepancies or alterations, the condition may not be satisfied. The person must not have notice of a previous dishonour of the bill.  Dishonour may be by non-payment or non-acceptance.

The person must act in good faith and honestly.  The fact that he may have discovered a defect by greater care, will not cause him to fail this test.  However, if he is very careless,  he may not be held to have acted in good faith.

The holder must have no notice of the affecting the title of the person through whom the bill is negotiated.  A defect in title would be one which undermines the basis of the endorser’s title.  This may arise from fraud, duress or illegality.  It may arise because of the prior holders’ unlawful act.  A holder who takes title to a holder in due course and is not partly to the illegality has the right to the holder in due course relative to the acceptor and parties  holding the bill prior to that holder.

If the signature on the bill is forged or invalid, the holder has no recourse against parties to the bill, prior to the invalid signature.  He is not holder as against those parties. This is so, irrespective of notice.


Important Notice! This website is provided for informational purposes only! It is a fundamental condition of the use of this website that no liability is accepted for any loss or damage caused by reason of any error, omission, or misstatement in its contents. 

Draft Articles; The articles on this website are in draft form and are subject to further review for typographical errors and, in some cases, updating and correction. It is intended to include references to the sources of materials and acknowledgements in the final version. The content of articles with [EU] in the title and some of the articles in the section on Agriculture are a reproduction of or are based on European or Irish public sector information.

Leave a Reply

Your email address will not be published. Required fields are marked *