Generally a person is not liable on a bill, unless he or his agent, has signed it. The drawee or acceptor does not become liable under a bill, until he has accepted it. Even if the drawee is a bank which holds an account for the drawer (thereby his debtor), a bill, such as a cheque, does not involve an assignment of the benefit of the account to the payee.
A bearer bill is transferred by delivery. Signing is not necessary. The person delivering it warrants that the bill is valid and that he has title to it. This warranty is made in favour of an immediate transferee, who is holder for value. He also warrants that he is not aware of any act that affects its value.
A person who signs the bill undertakes obligations to all subsequent holders. He may not dispute the authenticity of prior signatories. He may not generally dispute the capacity and existence of the drawer.
The holder of a bill in due course may generally assert title against an acceptor and endorsers. The acceptor may not deny the authenticity of the drawer’s signature to him. Similarly, the endorser may not deny the authenticity of the drawer’s signature and that of prior endorser. The holder in due course may not enforce against the acceptor if subsequent endorsements are forged. Such persons may not deny the authenticity of the bill as respects prior party, but the holder in due course cannot enforce against the person in a chain containing a forgery.
A bill of exchange may be enforceable, relatively. One party may enforce against another, while another is precluded. One person may be precluded from denying the genuineness of a signature to a subsequent holder in due course, but may be entitled to challenge it as against another party.
An endorsee does not, by presenting the bill, warrant its authenticity to the acceptor if known to the latter, some of the earlier signatories are forged. The liability is to a holder in due course only.
Where a person breaches a warranty, such that of having title, his liability will be not on the bill itself, but for compensation, on normal principle. This will not necessarily be a liquidated sum or will be not necessarily enforceable in the same summary manner.
Subsequent parties to a bill, may claim against earlier parties, back to the acceptor and drawer. Other than the case of an accommodation bill, the acceptor is primarily liable. The endorser’s liability is secondary ,in the nature of a guarantor.
The acceptor, by accepting the bill, undertakes that he will pay it according to the terms of his acceptance. He may not deny to a holder in due course, the existence of the drawer, the genuineness of his signature and his capacity and authority to make the bill. Where a bill is made payable to order, he may not deny the capacity of the drawer to endorse. This does not apply to the to the validity and authenticity of the endorsement.
Where a bill is payable to the order of another person, the acceptor may not deny the existence of the payee and his capacity to endorse. This does not apply to the issue of the genuineness or validity of the endorsement. In accordance with these principles, the acceptor is effectively precluded from denying the validity of pre-acceptance matters. He may dispute the validity of subsequent endorsements.
By drawing the bill the drawer undertakes that on presentation it should be accepted and paid in accordance with its terms. He undertakes that if it is dishonoured, he will compensate the holder or any endorser who must pay it, provided the proceedings on dishonour are taken promptly. He may not deny to a holder in due course, the existence of the payee and his capacity to endorse.
Once the bill is accepted, the drawer’s liability is secondary in the nature of the guarantor. Even where the bill is not accepted, the holder must take the relevant steps required on dishonour. If the holder does not take the relevant steps, he may lose his rights against the drawer.
As is the case with guarantees, actions by the holder which prejudice the drawer, may discharge his liability. If the payee or other party gives the acceptor more time to accept or pay, then this will discharge the drawer, as it prejudices his position.
The drawer may challenge the validity and authenticity of the payee’s signature. He is only precluded from denying the capacity of the payee to endorse. Once again, this means that he effectively stands over matters pertaining at the date of the bill.
Endorsers and Quasi-Endorsers
The endorser undertakes, that on presentation, the bill shall be accepted and paid in accordance with its terms. He undertakes that if it is dishonoured, he will compensate the holder or a subsequent endorser who is compelled to pay it. However, as above, the requisite proceedings must be taken and he is in the nature of a guarantor.
The endorser may not deny to a subsequent holder in due course, the genuineness and regularity of prior endorsers or the drawer. He may not deny to subsequent endorsees, that the bill is valid at the time of endorsement and that he had good title.
The person may sign a bill to back it and effectively add his name as surety. Such a person is not an endorser, as he does not hold the bill and has no title to it. Where a person signs a bill other than as drawer or acceptor, he incurs liability of an endorser to a holder in due course. He is deemed to give authority to the payee to insert his own endorsement before that, so that the quasi-endorser is drawn into the chain by endorsement back and forth to the person in the chain.
An endorser or drawer may limit his liability by specifically providing “without recourse”or the French “sans recours”, after his signature.
Presentation and Protest
A demand bill is due immediately. Once it is presented to the drawee for payment, it is payable. A term bill is payable on the due date. The acceptor must first accept it. It may be dishonoured by non-acceptance or non-payment. The payee or holder may proceed to enforce it immediately against the drawer and prior endorsers. If the bill is accepted, it must be presented on maturity for payment.
A bill is usually payable at the acceptor’s bank. Presentation must take place on the due date. Otherwise the drawers and endorsers will be released. If the bill is payable on demand, it must be presented within a reasonable time. The requirements for presentation may be waived or excused.
Once the drawee refuses to accept, the holder must notify the drawer and subsequent endorsers, giving them notice of dishonour. Presentation for payment is necessary to make the drawer and endorser liable. The requirement may be waived by the latter. Similarly if the acceptor refuses to pay on the due date, notice must be immediately given. In the case of the foreign bill, the bill must be protested in order to establish dishonour. There strict time limits for protesting a foreign bill.
Presentation for acceptance is not generally necessary, unless the bill so requires expressly or impliedly. If the bill has been dishonoured due to non-acceptance, presentation for payment is not necessary to establish dishonour. Where a bill is accepted, presentation for payment is not generally necessary to make the acceptor liable. Strictly speaking, it is the duty of the acceptor to seek the holder, notwithstanding that this may not be possible. The rule has been criticised.
Notice of Dishonour
Once dishonoured, notice of dishonour must be given to the drawer and subsequent endorsers. It need not be in any particular form or even in writing. Notice of dishonour is not required where there is no duty to pay or accept the bill. Where the drawer has countermanded payment, it is not required.
Notice must be given within a reasonable time. This requires that the person giving and receiving notice are resident at the same place. Notice must be given or sent in time to reach on the day of dishonour. Where they reside in different places, notice must be given on the day after dishonour, if there is post at a convenient hour or if not, by the next post. The notice operates for the benefit of all persons in the chain between the holder and the person to whom notice is given, as well as subsequent holders.
Foreign bills need to be protested to establish dishonour. The bill is presented once again, by a Notary Public to the acceptor. If it is dishonoured, the Notary Public endorses a memorandum on the bill. This is a noting of such fact on the bill. A declaration of protest is executed by the Notary in the presence of witnesses.
Rights of Holder
When a bill has been dishonoured, the holder may sue each party liable on it. Alternatively, he may elect to sue on the underlying contract, such as for the prices of goods under the Sale of Goods Act. The advantage of suing on the bill is that issues arising from the underlying contract may not be used as a defence. The liability on the bill is stand alone. Summary judgment on the bill will generally be available. Set off in relation to underlying issues on the transaction will not generally be allowed.
The holder has primary rights to recover on the bill. However, the drawer may recover from the acceptor, an endorser may recover from the acceptor, the drawer and prior endorsers. The right to recovery against prior parties requires that the person first discharge his own liability, A holder may sue multiple parties in a single action.
There are grounds of defence to bills, which may be available as between certain parties. One class of defence relates to the validity of the bill and issues such as authenticity, lack of authority, lack of capacity, fraud and illegality. These issues go to the heart of the bill itself. Such defences may exist relative to certain parties. As set out separately, it is a characteristic of a bill that, in some cases, a holder in due course may obtain rights against previous holders, notwithstanding prior defects entitled
Apart from the bill, parties to a particular transaction may have defences to liability such as those due to non-performance, breach, rights of setoff and misrepresentation. However, such rights do not invalidate the instrument. The latter defences are personal in that they are relevant only between the parties to the transaction concerned. Some defences will constitute equitable claims, such as for misrepresentation. A holder in due course takes free from such equities. However, they would affect other classes of holder.
A signature which is forged or is not authentic, is not valid to pass the bill. A signature may not be forged, but may be unauthorised in the sense that it is outside the of the signatory’s authority. In this case, the signatory who has apparent authority, will bind the principal, notwithstanding that he does not have actual authority.
Where a person signs for and on behalf, or “per pro”/ “p.p”. another, he gives notice that he has a limited authority to sign. The principle is bound, only if the agent had actual authority. The provision applies to a signature by procuration, under the Bill of Exchange Act. It is not clear if any such formulation (p.p. / for on behalf of) brings the bill within the concept of procuration, so that it is limited to actual, rather than apparent authority.
Where a person signs a bill as drawer, endorser, or acceptor and does so on behalf of a principal or in representative character, he is not personally bound. However, the mere adding of words that he acts as a representative, does not exempt person liability.
In determining whether a signature on the bill is not of the principal or the agent, the interpretation most favourable to the instrument’s validity is adopted. It is a question interpretation in the case of doubt as to whether the reference to the other entity is intended to demonstrate agency or is descriptive of the signatory.
Where the payee or drawee is a fictitious person, the holder may elect to treat it as payable to bearer. This principle also applies where the endorse is a fictitious or non-existent person. If the named person is not intended as the payee, he is fictitious. However, if he is the intended payee, but the instrument has been induced by fraud or misrepresentation, he is not fictitious.
Where the drawee is fictitious, the person holding the instrument may treat it as a bill of exchange or promissory note, i.e., two party instrument. If the drawer is a fictitious person, the person signing is liable as if he signed in his own name.
A person who makes an unauthorised alteration of a bill, voids the bill against persons other than those making authorising or agreeing to the alternation and subsequent endorsers. The alteration must be material and apparent.
The courts endeavour to ensure summary judgment will be allowed on a bill, without reference to the underlying transactions. A defence must be a liquidated claim in itself or must arise from failure of consideration. An unliquidated claim may not be set off. in relation to a holder for value, a claim for failure for consideration is not available, even as between payee and acceptor.If goods are rejected on the underlying transaction, the Sale of Goods Act allows the claim to reclaim the price. This is liquidated and may be permitted as a setoff .
Holder in Due Course
The holder in good faith must act honestly. Generally, actual notice of the alleged defect is required. Unlike a property transaction, it is acquirer need not make investigations. He is not generally bound by defects which he would have discovered on making reasonable enquiries. However, where there is something apparently amiss, wilful blindness may preclude from being a holder in due course.
Where the holder is himself party to the transaction underlying transaction, the courts may be more willing to take a view that he is not a holder in due course, where there are flaws in the underlying transaction (for example, a total failure of consideration.)
A bill of exchange is discharged by payment in due course in accordance with its terms. A party may be discharged without the bill being discharged. The bill will be discharged once no party is liable on it.
If the drawer or an endorser pay, then they are entitled to indemnity against the acceptor. The endorser has right of indemnity against prior endorsers and the drawer and the acceptor. The payment must be made to the person entitled under the bill.
The bill may be cancelled, where this is intentionally done by its holder. Material alteration avoids the bill against persons preceding the holder, who do not consent to the alteration
Payment by bill of exchange is conditional payment. Payments in this manner may be required to be accepted under the contract.
If the bill is dishonoured, the payee’s rights under the contract revive and he may choose to sue on the bill or the contract.
If the bill is lost, the payee or holder may be entitled to a second bill. He must give an indemnity. If the bill is fraudulently taken, it may be paid to a holder in due course and thereby discharges.
A bill is a book debt. It may be pledged or mortgaged or pledged.