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I Negotiability, Negotiable Instruments, and the Law of Bills, Notes, and Cheques

From: International Negotiable Instruments

Benjamin Geva, Sagi Peari

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved.date: 20 September 2021

Subject(s):
International financial law — International monetary law — Codification

(p. 6) Negotiability, Negotiable Instruments, and the Law of Bills, Notes, and Cheques

A.  The Nature of the Negotiable Instrument

1.01  A negotiable instrument is a piece of paper (or in theory any tangible item of property) containing one or more obligations to pay money. Transfer of the paper passes with it the right to enforce the obligation(s) and may confer on the transferee a better right than that of the transferor.

1.02  Not every document containing obligation(s) to pay money is endowed with the attributes of negotiability. At present, in each country, there may be a statute defining with precision the features of instruments that are negotiable. Such statutes typically provide for parties’ liability on such instruments, enforcement of the liability, and the transferability of the instrument. Certainty is an important objective of such statutes; hence, they contain simple and yet strict requirements as to the form, as well as procedures, required for both enforcement and transfer.

1.03  With the view of accommodating commerce and finance, both the types of instruments that have become negotiable and the law that governs them have evolved throughout the centuries, in various places, and under diverse legal systems. The numerous instruments and laws that have emerged bear similarities to each other, but are not identical. In each time and place, the law that governs negotiable instruments is anchored and applied in the context of a governing domestic legal system. Inevitably, negotiable instruments used in international payments give rise to questions concerning applicability of law, which are discussed in length later in this book.

1.04  With respect to instruments endowed with it, ‘negotiability’ addresses first the reciprocal relationship between the right to enforce an obligation, an abstract chose in action, and the right to the document that expresses it, a tangible chose in possession. (p. 7) Second, negotiability addresses the transferability of the document and the right to enforce the obligation thereon free from adverse claims and defences. Stated otherwise, with a negotiable instrument, the right to the paper and the right to enforce the obligation expressed in it are intertwined; their transfer involves physical delivery of the paper, and may confer on the transferee a better title than that of the transferor.

1.05  Possession of a document expressing any obligation may be used as a piece of evidence supporting the possessor’s entitlement to enforce the obligation. The evidentiary value of the presentation of the document, or even of the lawful possession of the document to confer the transferee the right to enforce the obligation, depends on the terms of the obligation and may vary. Furthermore, in the absence of suspicious circumstances, and again, depending on the terms of the obligation, performance of an obligation to the person presenting the document may give a discharge to the debtor. This, however, is not conclusive as to whether the document is negotiable. Rather, to satisfy the first point of reciprocity, the right to the document must be inseparable from the right to sue and give discharge on the obligation. Accordingly, an attempted transfer of a negotiable instrument to one person, and the rights on it to another, will lead to a dispute between the two transferees as to who is entitled to both the paper and the rights thereon, but not to a split between the right to the paper and the right to enforce the obligation. Indeed, by agreement, the possessor may not be the owner; but otherwise, the right to possess and own the paper is inseparable from the right to sue and receive discharge on the debt embodied therein.

1.06  For example, when receiving clothes from a customer, a laundry service will typically issue a ticket to be presented at pickup. The service provider is likely to be discharged upon the return of the clothes in good faith to whoever will pick them up while presenting the ticket. However, a transfer of a laundry ticket from one person to another is not a usual way for transferring rights thereon and the laundry service may insist on verifying the pickup entitlement according to its own books. Stated otherwise, the laundry ticket is not a negotiable instrument.

1.07  Effectively speaking of the first point, that of the relationship between the right to and on the document, Goode defines an ‘instrument’ as ‘a document of title to money’.1 The term thus corresponds to the Germanic Wertpapier2 defined in art 965 of the Swiss Code of Obligations as ‘any document in which a right is incorporated in such a way that it cannot be claimed nor transferred to others … without the document’.3 An (p. 8) instrument differs from a documentary piece of evidence in ‘locking’ the debt obligation into the paper on which it is written so that the entitlement to the debt becomes co-extensive with the entitlement to the document. It is in this sense that the claim to the debt, otherwise a chose in action, is said to become allegorically ‘reified’, so as to be ‘merged’ or ‘locked’ into the document.4 The claim then acquires features of a ‘chose in possession’, even as it survives the destruction and sometimes the loss of the document,5 and ‘splits’ into ‘parts’ of a ‘set’, each capable of circulating on its own, and yet altogether forming ‘one bill’.6

1.08  This is, however, only one facet of ‘negotiability’ that may exist on its own for some types of ‘instruments’7 that are nevertheless not ‘negotiable’, at least in the full sense. Rather, to enhance circulation of at least some ‘documents of titles to payment in money’, the law may confer on a transferee, under prescribed circumstances, a better title than that of the transferor. This is the second point addressed by ‘negotiability’, which distinguishes negotiable instruments from ordinary chattels with respect to the general rule that a transferee may not acquire more rights than those of the transferor.8 At the heart of full ‘negotiability’ are thus the ideas of ‘easy transferability’ involving the physical transfer of the paper (sometimes called ‘procedural’ or ‘formal’ negotiability) and of ‘transferability free from claims and defences’ (sometimes called ‘substantive’ negotiability).

1.09  However, according to Cowen and Gering, it is the nexus between the right to the document and the right to enforce the promises embodied in it, an idea first articulated by Savigny, which ‘provides the key to the analytical and systematic understanding of the nature of a negotiable instrument’.9 Relating both to ‘a chattel, a tangible scrap of paper’ and ‘a bundle of contracts’, a claim to a negotiable instrument thus involves not only ‘the right to possess a thing but [also] the right to sue several persons [liable to it]’.10 The right to the document is intertwined with the right to enforce the contracts thereon and it is procedural negotiability that allows substantive negotiability to exist. The rights to and on an instrument are inseparable so that,

A negotiable instrument is a document of title embodying rights to payment of money … which, … is (a) transferable by delivery (or by indorsement and delivery) (p. 9) in such a way that the holder pro tempore may sue on it in his own name and in his own right, and (b) a bona fide transferee [for value]11 may acquire a good and complete title to the document and the rights embodied therein, notwithstanding that his predecessor has a defective title or no title at all.12

1.10  A ‘holder’ who ‘may sue on it in his own name and in his own right’ under (a), is one in possession of the document and to whom the promises run by its terms. Such is the case for a bearer of an instrument payable to the bearer, as well as for the payee or indorsee (‘endorsee’13 in Canada) in possession of an instrument payable to order. To acquire ‘a good and complete title to the document and the rights embodied therein’ under (b), in addition to complying with the taking in good faith and other requirements, the ‘transferee’ must be such a ‘holder’. This describes the central role of the holder in the law of negotiable instruments.

1.11  In contrast to the negotiable instrument, an ordinary debt cannot be transferred under the common law.14 Courts of equity viewed this state of law as ‘too absurd … to adopt.’.15 Having admitted the assignee’s title, they nevertheless required the assignee to sue in the assignor’s name.16 Thus, when Cowen and Gering speak of the holder’s right to sue ‘in his own name and in his own right’ they ought to be taken as distinguishing such a right from that of the equitable assignee who must sue in the original creditor/assignor’s name. They ought not to be taken to identify holding with ownership. Indeed, while in a given case, ownership and holding may converge17 so as to confer on the holder the right to sue not only ‘in his own name’ but also ‘in his own right’, the holder is not necessarily the legal owner. For example, a ‘holder’ may be an agent for collection for the owner of an instrument that the owner had transferred and made payable to him or her; such a holder may sue in his or her own name albeit in the owner’s right.18 By the same token, a non-holder owner may be in possession of an instrument not payable to him or her, in which case there is no holder,19 and the owner may sue in his or her right even if not necessarily in his or her own name. Furthermore, possession may be either lawful or unlawful—a distinction that does not impact on the holder’s standing to bring an action, but may impact his or her right to successfully recover. In the final analysis, regardless of the lawfulness of the possession, while (p. 10) every holder must be in possession, not everyone in possession is a holder. Similarly, not every holder is an owner and not every owner is a holder.20 While it is true that s/he ‘may not be the legal owner of [the instrument]’, it is unhelpful to characterize the holder as ‘the mercantile owner of [it]’21 as this characterization does not inform us as to his or her powers and rights.22

1.12  Locking the right therein, the negotiable instrument is said to be a ‘documentary intangible’.23 It is a chattel, chose in possession, carrying obligations for which the entitlement is a chose in action. As a chattel and intangible, it is governed by the law of property. The various contracts it carries are governed by the law of contract. Indeed, it is general law that determines the application of insolvency and inheritance law to negotiable instruments. As well as an ordinary chattel, a negotiable instrument may be transferred by mere delivery. Similarly, as a chose in action, it may be assigned without the transfer of possession,24 even while either giving the assignee the right to demand possession or appointing the possessor as an agent. Likewise, as under a contract, liability hinges on an offer and acceptance25 and requires consideration in common law26 and causa in civil law.27

1.13  As will be discussed, the three common types of negotiable instruments are bills of exchange (‘bills’), promissory notes (‘notes’), and cheques. Bills are also known as drafts and cheque is spelled in the USA as ‘check’. While bills and cheques are unconditional orders, the note is an unconditional promise, in each case, to pay a sum certain in money. The cheque is an order to a ‘bank’, payable on demand. Bills and notes may be payable either on demand or at a determinable future time. With some variation, they may all be either payable to the bearer or to the order of a specified person.

1.14  Each legal system adopted a specialized distinct body of law dealing with specific proprietary and obligatory characteristics of such instruments, such as matters relating to the form, issue, aspects of liability, negotiation and negotiability, and discharge. A document governed by this body of law is said to be not only an obligation (or obligations) contained in a chattel but also a ‘negotiable instrument’—namely, ‘a document (p. 11) governed by the specific legal principles applying to negotiable instruments’.28 These specific principles have been formed by the adaptation of general principles of law to the unique mixture of rights to, and obligations on, a negotiable instrument.

1.15  Aspects of general law governing negotiable instruments form ‘the law of bills and notes in the wide sense’. At the same time, the set of laws providing for the specific elements of the bills, notes, and cheques is characterized as ‘the law of bills and notes in the strict sense’.29

1.16  As will be discussed in Chapter II, the negotiable bill, note, and cheque each has its own distinctive features and history so that the law governing it has evolved in a process of the adaptation of the general law to accommodate it. Furthermore, categories share common elements that are not necessarily directly linked to their common denominator of negotiability. Accordingly, the distinctive nature of a document of debt as a ‘negotiable instrument’ does not convey the full scope of what falls into ‘strict sense’ matters. For example, in England, the focus of the evolution had been the liability on a bill or note in ‘an action upon the case’ on the basis of ‘the custom of merchants’.30 Regardless, negotiable instruments legislation even provides for a non-negotiable instrument.31 Hence, ‘negotiability’ is too narrow a component of the ‘strict sense’ law—the evolution of which had been well underway irrespective of whether, and before, specific documents of debt acquired negotiability. As a subject of a specific set of laws, a bill, note, or cheque is thus a ‘negotiable instrument’ in the sense of being governed by a body of law addressing matters pertaining specifically to instruments that are negotiable but include, although nonetheless is not restricted to, negotiability. To that end, Falconbridge described this area to include ‘the form, issue, negotiation, and discharge of bills or notes, but not including all the consequences of, or the all the rights or liabilities resulting from contracts entered into by parties to bills or notes’.32

B.  Brief History of Codification: Domestic Statutes and International Conventions

1.17  As will be seen in Chapter II, the bill, note, and cheque each has its own distinct history that arose in response to the needs of commerce as they have developed. As they evolved, and notwithstanding the myth of ‘law merchant’, further discussed in Chapter II, as a unifying source of law governing all such instruments everywhere, they were initially governed by principles of Roman law in the Continent and principles of common law in England. At present, the unifying element for these types (p. 12) of instruments is negotiability and the principal sources of law governing them throughout the world are statutory. However, this does not preclude courts from recognizing new types of negotiable instruments once they are so treated by participants in financial markets.33 Nor are Legislatures precluded from applying negotiability to other type of ‘documentary intangible[s]’34 such as investment securities35 or documents of title to goods.36 ‘Negotiability’, albeit not necessarily to the full extent,37 is said to be established by estoppel38 or contract.39 At the same time, when speaking in the strict sense, negotiable instruments legislation is limited to bills, notes, and cheques.

1.18  Codification relating to bills of exchange is traced to the seventeenth century in Continental Europe. In France, the Ordonnance de Commerce of 167340 is considered to be ‘influential’,41 though it is said to be superseded by the Code de Commerce of 1807.42 Another ‘influential enactment’43 is said to be the German Wechselordnung of 1848.44 However, the first comprehensive codifying statute is the UK Bills of Exchange Act 1882 (BEA),45 which was characterized in Bank of Baroda v Punjab National Bank as a ‘codifying Act’.46 Indeed, the BEA was acknowledged to have been ‘intended to be a code of the law relating to negotiable instruments’. However, it was held that in its interpretation, ‘the proper course is in the first instance to examine [its] language … and to ask what is its natural meaning uninfluenced by any considerations derived from the previous state of law’.47

1.19  The BEA is a comprehensive codifying statute in two major ways. First, it covers bills, notes, and cheques. It addresses both commonalities and differences among such instruments. Second, the BEA is not limited in its coverage to the negotiability of such instruments, but rather covers all of their aspects as instruments. At the same time, it (p. 13) does not purport to cover all of their aspects that extend beyond those they have as instruments. Thus, under BEA s 97,

  1. (1)  The rules in bankruptcy relating to bills of exchange, promissory notes, and cheques, shall continue to apply thereto notwithstanding anything in this Act contained.

  2. (2)  The rules of common law including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to bills of exchange, promissory notes, and cheques.

1.20  The BEA ‘furnished the model for the law of negotiable instruments of most members of the commonwealth and of some other countries which, at one time or another, came under the influence of English law’.48 These are mostly common law jurisdictions,49 but the list also includes non-common law countries such as South Africa,50 Israel,51 and Sri Lanka.52 The BEA also applies in the Province of Quebec in Canada, where the Canadian BEA53 applies as a federal statute and where it was held that the counterpart of BEA s 97(2)54 is limited to ‘strict sense’ matters.55 Accordingly, any other matter affecting negotiable instruments and not governed by the BEA is to be dealt with under the civil law of the province and not the rules of common law.56

1.21  Ellinger divides BEA countries into those with minor variations, and those with major departures,57 with Canada and Australia58 belonging to the latter category.59 Within the common law systems, Ellinger then enumerates the Roman–Dutch Group that adopted the BEA, as well as the Indian Act Group and the Uniform Commercial Code (UCC) Group.

1.22  The Indian Act60 is a pre-BEA statute and ‘mainly … codification of English common law’.61 For its part, Article 3 of the UCC,62 is the successor in the USA of the Uniform Negotiable Instruments Law (NIL),63 of which concepts, but not structure, bore a clear influence of the BEA. In turn, the UCC revised the law substantially, even though in relation to some basic concepts English heritage can still be traced. However, uniformity among the various American jurisdictions is not full. Only (p. 14) eleven states and the District of Columbia have adopted, and one has introduced, the 2002 amendments.64 Thus, choice-of-law rules remain relevant in the US domestic context as well.

1.23  For their parts, civilians in Europe and elsewhere produced uniform laws first in the Hague Conventions of 1910 and 191265 and subsequently in the Geneva Conventions of the early 1930s, or more specifically, the Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes (UBL)66 and the Convention Providing a Uniform Law for Cheques (UCL).67 Most civil law countries introduced laws either adopting or influenced by these two Conventions.68 Ellinger accordingly divides such countries according to their respective level of adherence: strict, intermediate, and strongly influenced,69 with Germany70 falling into the strict category71 and France72 into the intermediate one.73

1.24  Finally, a few countries stand on their own with ‘sui generis systems’ that may reflect aspects of the BEA, the Geneva Conventions systems, or both, but are nevertheless ‘subject to many departures from any conventional system and often include numerous archaic or uncommon provisions’ so as to accordingly be ‘outside the ambit of the mainstream systems’.74 China falls into this category.75

1.25  The ‘great divide’ is thus between common and civil law jurisdictions, respectively represented by the BEA (and UCC) and the Geneva Conventions. Nevertheless, on the whole, the variations do not reflect differences between common and civil laws’ fundamentals. As will be seen in Chapter II, in recognizing the distinct categories, particularly those of the bill and cheque, each major system had to adapt its own legal principles in order to accommodate the instruments. However, in covering bills, notes, and cheques by statute, each system could either overlook or depart from its own doctrinal underpinning and address each subject matter pragmatically. Thus, there is a great deal of similarity between the BEA and Geneva Conventions and any differences that do exist are mostly a matter of either drafting or, occasionally, policy, which do not necessarily reflect the (p. 15) difference between common or civil law but rather the prevailing view at a given time or place.

1.26  Against this background, the United Nations Convention on International Bills of Exchange and International Promissory Notes (UNIBNC)76 was designed to provide parties engaged in international trade the option to use bills and notes (but not cheques) subject to a uniform reformed legal regime.77 Implementation efforts have been unsuccessful.78

1.27  Both the BEA and UBL deal in detail with bills and provide for the application of the provisions that govern bills with necessary modifications to notes.79 The BEA treats cheques as a sub-category of bills.80 There are, however, a few specific provisions applicable only to notes in both the BEA and UBL and to cheques in the BEA. UCC Article 3 deals with the negotiable instrument as one category and provides separately for rules applicable only to one or some types of instruments. UCC Article 4, to which there is no comparable statute in any other major jurisdictions, covers the collection and payment of cheques and other payment items through the banking system.

C.  Bills, Notes, and Cheques and Their Respective Uses: Negotiable Instruments Covered by Legislation

1.28  Subject to some variations, all statutory sources, namely, the BEA, UCC Article 3, the Geneva Conventions, and the UNIBNC govern the same types of principal instruments and general subjects, including parties to, and liability on, the instruments, and the mode and result of their transfer.

1.29  Under these sources, the bill (or draft) is an unconditional written and signed order, addressed by one person (‘drawer’) to another (‘drawee’), requiring the latter to pay a sum certain in money.81 For its part, the promissory note (‘note’) is an unconditional written and signed promise (by a ‘maker’) to pay a sum certain in money.82 The cheque is a bill payable on demand drawn on a bank.83 Specific categories added by (p. 16) UCC Article 3 are certificate of deposit,84 traveller’s cheque,85 cashier’s cheque86 and teller’s cheque.87

1.30  A negotiable instrument may be payable to, or to the order of, a designated payee or to the bearer,88 on demand (or at sight) or (other than with a cheque) at a fixed or determinable future time.89 A negotiable instrument may be transferred from one person to another by ‘negotiation’, consisting of either a mere delivery in the case of an instrument payable to the bearer, or of delivery plus the transferor’s signed ‘indorsement’ in the case of an instrument payable to the order.90 Under certain conditions,91 it may be enforceable by its holder for its entire sum, free of a third party’s adverse claims, as well as of any prior party’s contract defences.92 The holder is the bearer of an instrument payable to bearer or the payee or indorsee in possession of an instrument payable to order.93

1.31  The general rule is that a signature is a necessary requirement for liability on an instrument.94 One exception is under French law, which allows the holder of a bill and cheque to recover from the drawee, on the basis of la provision, that is, what the drawee owes the drawer, even without an acceptance.95 A similar exception applies in Scotland, where a bill is stated to operate as an assignment of funds ‘from the time when the bill is presented to the drawee’.96 However, the broad principle, overwhelmingly applicable (p. 17) elsewhere,97 is that ‘[a] check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment’;98 a drawee incurs liability on a bill only by signing as an acceptor.99 It is against this background that, as long as it has not been paid, the cheque is, in principle, revocable.100

1.32  The acceptor of a bill, being the drawee who indicated his or her consent to comply with the drawer’s order,101 and the maker of a note, being the promisor thereunder,102 are primary parties; for each, liability on the engagement is according to its tenor. The drawer, being the order giver,103 and each indorser, being the transferor of an instrument payable to him or her,104 are secondary parties. Each is liable only upon the dishonour of the instrument, and usually upon the holder’s compliance with presentment and notice requirements, which may be required to be formalized. Generally speaking, while presentment is made to the payer, being either the drawee or a primary party, notice of dishonour is to be sent to parties liable upon the dishonour by the payer. The ‘avalist’ signs as a guarantor to a party liable on the instrument.105 There is no ‘avalist’ under the BEA and the UCC; thereunder, a signer who is not a party to the underlying transaction is an accommodation party.106 Under the BEA he or she could also be taken to be an anomalous indorser.107

1.33  Cheques are payment instruments. An international foreign currency payment can be made by means of a cheque drawn by a local bank on its correspondent in the country of the currency. For example, banks in Ruritania may provide chequing accounts in the currency of Penguina. Such a cheque may be ‘internationalized’ by being issued and/or circulated in Penguina and at least paid (and possibly collected even if in part) in Ruritania. Notes are credit instruments used domestically and internationally in connection with sales transactions, loans, and guarantees. Bills are both payment and credit instruments. In international trade, the seller may draw a bill on either the buyer or (particularly in conjunction with a letter of credit) on the buyer’s bank. Such a bill may be made payable to the seller and negotiated by him at its present value and with recourse to the seller’s bank for transmission or presentment to the buyer or the buyer’s bank.108 The general presumption is that an obligation on a negotiable (p. 18) instrument suspends, that is, conditionally discharges, the debt for which it is given; the debt is, however, revived upon the dishonour of the instrument, at which point the holder may opt to sue either on the instrument or the underlying debt.109 UCC Article 3 specifically excepts instruments drawn by regulated financial instruments, which are deemed to absolutely discharge the debt for which the instrument is given.110

1.34  A specific practice involving bills used in international trade is that of bills in a set. This practice is carried out when bills are mailed with the view of avoiding delay. With the decline of the use of mail in international trade, the use of the practice has been significantly reduced. It is governed by BEA s 71, UBL arts 64–66 and UCL arts 49–50. Thereunder, the instrument is drawn in a set of two identical parts, to be numbered and to refer to each other, and yet to constitute one bill. To minimize risks of delay, misdelivery, and loss in transit, each part is mailed separately and may operate as a separate bill, so that a signer is liable on each part he or she accepted or indorsed. Only the drawer is to sign on each part and is liable on the whole bill; however, the drawer is discharged when he or she pays any part duly presented to him or her. The holder in due course (or lawful holder) whose title accrues first is the true owner entitled to part with acceptance. The owner is the holder in due course (or lawful holder) whose title accrues first; but discharge is upon payment or acceptance of the part first presented. An acceptor who pays on an unaccepted part is not discharged. Otherwise, discharge of any part is discharge of bill.

D.  Laws of Bills and Notes: Major Substantive Differences

1.35  Negotiable instruments law represents a delicate balance between the holder’s expectation to recover and the reasonable expectations of the signatories. To that end, the law emphasizes form, as well as text, uniformity, and brevity in order to secure predictability. At the same time, for reasons based on local conditions, the impact of local general law, and even accident, variations are rampant.

1.36  Even on its own, Anglo-American law of bills, notes, and cheques is far from uniform. Particularly, American law, having derived from English law and tradition, nevertheless settled down in its own unique course,111 and is not completely uniform. The Canadian Act, though closely modelled on its English counterpart, is nonetheless not identical to it. For example, it contains provisions undermining the power to acquire rights free from prior parties’ defences in instruments issued for patent112 and consumer113 transactions. Additionally, the various Geneva Conventions national (p. 19) statutes may not be identical. Accordingly, in connection with an international instrument, the application of a particular law is not a matter of indifference.

1.37  Among the Anglo-American systems, only American law effectively equates the position of the holder not in due course to that of an assignee of a debt.114 Furthermore, under UCC § 3-602, other than in connection with a stolen instrument and wrongful possession, knowledge by a payer of a third party’s adverse claim does not preclude discharge. This is contrary to the less protective BEA s 59(1), under which a discharging payment to the holder must be made ‘in good faith and without notice that his title to the bill is defective’. The UCC is unique115 in imposing on a signer,116 as well as a bank customer,117 duties of care, and in addressing detailed scenarios in which fraud losses are allocated to parties who are presumed to be able to prevent them.118 On the other hand, both American and Canadian laws do not provide for particular defences for non-negligent and bona fide banks handling instruments,119 particularly cheques.120

1.38  Several fundamental dissimilarities exist between an Anglo-American and a Geneva Convention derived statute. Following Cowen and Gering, there are ten major differences:121

  1. 1.  In continental Europe, a bill is primarily a payment mechanism, while in the Anglo-American system bills and cheques have developed into a paper currency.

  2. 2.  In the Anglo-American system, unlike the Continental one, commercial law (including the law of bills and notes) is part of the general law binding all persons and administered by the ordinary courts.

  3. 3.  A fundamental principle of the Anglo-American system is that no person may acquire a good title to a bill or note, and in fact be a ‘holder’,122 under or through a forged (including unauthorized) indorsement.123 Furthermore, a discharging (p. 20) payment must be to the ‘holder’124 and hence not to a taker under or through a forged indorsement. In contrast, under UBL art. 16 ‘[t]he possessor of a bill … is deemed to be the lawful holder if he establishes his title to the bill through an uninterrupted series of endorsements’. As long as such a possessor ‘has [not] acquired it in bad faith, or … been guilty of gross negligence’, he ‘is not bound to give up the bill’ to a person who had been dispossessed of it. Under UBL art. 40, upon receiving payment, such a possessor gives discharge to a payer who ‘has [not] been guilty of fraud or gross negligence’, while not being required to be without knowledge of the adverse claim. To obtain the discharge, the payer ‘is bound to verify the regularity of the series of endorsements, but not the signature of the endorsers’.

  4. 4.  Unlike the Anglo-American holder in due course,125 the Continental counterpart, the lawful holder,126 needs not take the instrument for value in order to qualify for the elevated status. Furthermore, the latter’s freedom from claims of ownership is not related to his or her freedom from equities of defences, and vice-versa. Each freedom is unrelated to the other. While freedom from adverse claims hinges under UBL art. 16 on lack of bad faith and gross negligence, freedom from contract defences is given under UBL art. 17 to a holder who ‘has [not] knowingly acted to the detriment of the debtor’. The holder’s elevated position is then not an ‘all or nothing’ situation as is that of the Anglo-American holder in due course.127 As well, the ‘good faith’ concept, specifically required by the BEA128 and UCC129 for the acquisition of holding in due course status, may not be identical in the Anglo-American and UBL systems.130

  1. 4.  Formal requirements as to the definitions of various instruments are more detailed, specific, and rigid in the UBL131 than in the Anglo-American statutes.132 For example, in the former but not the latter, the instrument must actually be described on its face as being a bill of exchange or promissory note. Also, unlike the Anglo-American system, the Geneva Convention requires a bill and note to include statements as to the designated place for payment, and the date and place of issue.133 Grisoli goes as far as to argue that ‘English law and the Uniform Law appear irreconcilably divided on formal requirements’.134

  2. 5.  The adherence of English law to the doctrine of consideration required the inclusion in Anglo-American statutes of provisions and presumptions as to value.135 In (p. 21) contrast, the Continental adherence to ‘causa’136 did not require corresponding provisions in the Geneva Conventions.

  3. 6.  The Anglo-American system is more flexible than its Geneva Conventions counterpart. An example of this ‘elasticity’ or ‘flexibility’ is the widespread use of the word ‘reasonable’ in the governing statute, as in connection with the time to present a bill payable ‘at sight’ under BEA s 40.137 In contrast, the word does not appear in the UBL.

  4. 8.  The UBL requires a bill,138 as well as a note,139 to be payable either to a named payee or to the order of a named payee. In contrast to both the BEA140 and the UCC,141 and interestingly, even to the UCL with respect to cheques,142 the UBL does not allow a valid bill or note to be made out initially, as opposed to being subsequently indorsed,143 payable to bearer.

  5. 9.  The Geneva regime treats cheques in a separate convention and not as part of the general statute governing bills and notes as in the Anglo-American system.

  6. 10.  Under the UBL, upon the dishonour of an instrument, formal authentication in the form of ‘protest’, is required.144 Under the BEA, protest is required for a foreign instrument and is optional otherwise.145 Protest procedure exists under the UCC146 but is entirely optional.147 It should be added that the unexcused failure to give a notice of dishonour or default to a secondary party discharges that party under the BEA148 and the UCC149 but not under the UBL, under which the failure may nevertheless result in liability for loss.150

1.39  An additional major difference concerns the ‘avalist’, who is a party to an instrument under the UBL151 with no direct parallel in the BEA,152 other than in South Africa.153 A much less significant difference is that both the UBL154 and the BEA155 (but not the (p. 22) UCC) contain rules on instruments issued in a set of two or more identical parts. Only the UBL156 provides for a case in which a copy supersedes an original.

1.40  Among all these, the two principal areas of difference are those relating to formal requisites and the effect of forged indorsements.

E.  Laws of Cheques: Major Substantive Differences157

1.41  A cheque is a written unconditional order, addressed to a bank, to pay on demand a sum certain in money. In practice, a bank customer draws it on funds (or against a line of credit) available to the drawer/customer with the drawee bank. As a rule, the cheque is a negotiable instrument, transferable by delivery, with indorsement where it is not payable to the bearer. The holder presents a cheque for payment to the drawee bank either directly or through a collecting bank acting as the holder’s agent. The cheque collection machinery is a debit–transfer payment system. Having originated as a paper-based, manually handled mechanism, the cheque collection machinery has become, to some degree or another, automated, with the cheque itself being gradually more and more ‘electronified’.

1.42  The current form of the cheque as an instruction or mandate, and the contemporary interbank cheque collection machinery, have their origins in the seventeenth-century goldsmith system in England.158

1.43  In civil law countries, cheques are governed by statutes modelled on the 1931 Geneva UCL. This is currently so in France, Germany, Italy, Japan, and Switzerland. The various national statues are nonetheless not identical. In common law jurisdictions, including others that have been under strong British influence, the model statute is the 1882 English BEA, which treats the cheque as a specie of a bill. In the UK, a specific statute concerning cheques supplements the BEA. In Canada, the BEA is federal, so as to be applicable also in the civil law province of Quebec. Other non-common law jurisdictions that passed the BEA include South Africa, Sri Lanka, and Israel. Australia has a specific statute governing cheques, which is nonetheless drawn on the English BEA model. National statutes in all such jurisdictions, particularly in Canada,159 contain local variations. In the various jurisdictions of the USA, cheques, as negotiable instruments, are governed by Article 3 of the UCC. Cheque deposits and collections are further governed by Article 4 of the UCC, as pre-empted or supplemented by federal law, particularly in dealing with the availability of funds.

(p. 23) 1.44  Much of cheques law is concerned with the instruments themselves.160 However, both the drawer and the depositor of a cheque are bank customers and both their respective banks participate in the cheque collection and payment process. Not surprisingly, the law of cheques as instruments is not always easily separable from the law governing the banking relationship as it applies to cheques. For example, vis-à-vis its customer, the drawee bank will not be discharged unless it pays the cheque to the one entitled to obtain payment, as determined under the law governing cheques as instruments.

1.45  Fundamental differences between the UCL and the BEA/UCC systems follow those between the UBL and the BEA/UCC systems discussed in section D for bills and notes. They thus concern the effect of a forged indorsement,161 formal requirements,162 and aspects relating to acquisition163 and scope of a superior title defeating adverse claims and prior parties’ defences.164 Other significant differences between the two major cheque systems concern the avalist,165 and consideration versus causa.166 At the same time, protest under the UCL is optional.167

1.46  The following is a concise overview of specific distinguishing features of cheques under the various national laws, dovetailed by a discussion on the varied treatment of cheque electronification:

  1. 1.  A cheque is universally defined as an unconditional order in writing, of a drawer, directed to a drawee bank, to pay on demand (or ‘at sight’) a sum certain in money.168 The most important local variation is the requirement under the UCL that the term ‘cheque’ be included. Also under the UCL, a cheque must be drawn on a banker holding funds at the drawer’s disposal, but is nonetheless a ‘cheque’ notwithstanding the violation of this requirement.169 There is no uniformity among the various jurisdictions as to the definition of ‘banker’ or ‘bank’.170 In departure from other statutes, UCC § 3-414(b) treats the liability of the drawer of a cheque as primary, which upon dishonour eases the procedural requirements fastened on a holder.

  2. 2.  UCC Article 3 in the USA and the BEA in the UK, as well as statutes modelled on the BEA, such as in Canada,171 Israel,172 and South Africa,173 but not in Australia, (p. 24) govern cheques, side by side with bills (or drafts) and notes. Australia has a separate statute dedicated to cheques,174 while selected cheque aspects are dealt with in the UK under a specific statute.175 Statutes in civil law countries such as Germany,176 Italy,177 Japan,178 Switzerland,179 and France180 follow the UCL.

  3. 3.  Specific legislation dealing with the collection and payment of cheques exists only in the USA.181

  4. 4.  Short periods within which a cheque must be presented for payment are prescribed in civil law countries.182 Under the BEA, presentment must be made within reasonable time after the issue of the cheque, though under some circumstances delay may be excused.183 Under UCC § 4-404, a bank is ‘under no obligation … to pay [an uncertified] check … which is presented more than six months after its date ’.

  5. 5.  Certification of cheques resulting in the liability of the drawee bank to the holder is recognized in the USA,184 Canada,185 France,186 Italy,187 Japan,188 and South Africa.189 Certification is precluded in Germany190 other than for cheques drawn on the central bank.191 In Canada, the practice is not backed by any specific statutory provision. In both Canada and the USA, cheque certification is analysed as a form of acceptance of the cheque. In line with the provisions of the UCL,192 this mode of analysis is precluded in France, Italy, Japan, and Germany. In Canada and the USA certification involves the actual withdrawal of funds from the drawer’s account and their placement in a suspense account, pending presentment for payment. Elsewhere, certification may involve the holding or blocking of funds by the drawee bank in the drawer’s account for the short period within which a cheque must be presented. In fact, cheque certification is not practised in Japan and Italy. Under the UCC, a certified cheque is part of a broader category of cheques (p. 25) on which a bank is obligated,193 such as cashier’s cheques (on which the drawer and drawee are the same banks) and teller’s cheques (on which the drawer and the drawee are two separate banks).194 Italian Cheque Law provides in arts 82–83 for circular cheques issued by banks, each carrying with it the issuing bank’s ‘unconditional promise’ to pay. UCC Article 3 also covers the ‘[t]raveller’s check’.195

  6. 6.  Cheques are payable ‘on demand’196 or ‘at sight’197 all of which are pretty much interchangebale terms designed so show that cheques are not credit instruments to be made payable at a future time. Under UCL art 28, ‘[a]ny contrary stipulation is not recgonized’. Post-dating, namely dating a cheque later than its date of issue with the intent that it will not be presented for payment until the date the cheque bears, is accordingly ignored in civil law countries, except for determining the end of the statutory mandated period within which cheques must be presented.198 Post-dating is not recognized in the USA, but could be given effect by temporary stop-payment orders.199 Case law recognized cheque post-dating under the BEA200 so that payment by the drawee bank prior to the ostensible date of the cheque is wrongful.

  7. 7.  Countermand of payment (namely, ordering stop payment) of cheques is recognized under the BEA201 as well as in the USA.202 Under UCL art 32, a cheque countermand is effective only after ‘the expiration of the limit of time for presentment’. In France, inasmuch as it transfers the cover to the payee, the cheque is irrevocable and hence uncountermandable. In Australia, the statute invalidates any agreement purporting to negate the right to countermand payment altogether.203

  8. 8.  Notice of the customer’s death revokes the drawee bank’s duty and authority to pay cheques under the BEA,204 as well as in the USA.205 In both Australia206 and the USA,207 revocation does not become fully effective until ten days after the receipt of the notice of death by the bank. The drawee bank’s duty and authority to pay a cheque drawn by its customer also comes to an end upon receiving notice of the customer’s bankruptcy in Israel;208 mental incapacity in Australia;209 and the adjudication of incompetence in the USA.210 Similar events terminate the bank’s(p. 26) authority to pay in South Africa.211 In contrast, under UCL art 33, neither the death of the drawer nor his or her incapacity, occurring after the issue of the cheque, have any effect with regards to the cheque.

  9. 9.  The wrongful dishonour of a cheque by the drawee bank, notwithstanding the availability of cover in the customer’s account (either in the form of credit balance or due to an overdraft facility), is actionable by the customer in all jurisdictions. In the UK, substantial damages for injury to credit may be awarded to the customer without proof of actual damage.212 Conversely, under the UCC, a drawee bank ‘is liable to its customer for damages proximately caused by the wrongful dishonor of an item’. However, in principle, ‘[l]iability is limited to actual damages proved’.213 In France, a wrongfully dishonouring drawee bank becomes liable to the drawer for any resulting damages.214

  10. 10.  As a negotiable instrument, the cheque is payable to order or, in contrast to a bill or note under the UBL, also to bearer.215 It is transferable by ‘negotiation’,216 namely delivery, and, other than a cheque payable to bearer, with the transferor’s indorsement.217 Upon compliance with specified conditions218 a transferee by negotiation may take the cheque free from adverse claims and prior parties’ defences.219 There is no consensus as to the transferability of a cheque other than by negotiation and in some jurisdictions, the question may be unsettled. Thus, under BEA s 8(1), a bill containing words prohibiting transfer, or indicating an intention that it should not be transferable, ‘is valid as between the parties thereto’ but ‘is not negotiable’. While under the BEA, a cheque is a type of bill,220 it was doubted in National Bank v Silke221 whether BEA s 8(1) applies to cheques. A hundred years later, in 1992, the UK amended the BEA by passing s 81A, stating that a crossed cheque bearing across its face the words ‘account payee’, or ‘a/c payee’, with or without the word ‘only’, ‘shall not be transferable, but shall only be valid as between the parties thereto’. South Africa followed suit albeit with some modifications.222 No other BEA jurisdiction passed a similar amendment. Conversely, under s 39 of the Australian Cheques Act, until it is discharged, and ‘notwithstanding anything written or placed on the cheque’, ‘[e]very cheque is transferable by negotiation’. Arguably, restrictions on the transferability or negotiability of cheques are to be disregarded in the USA.223 For its part, UCL art 14(2) covers (p. 27) a cheque ‘made payable to a specified person, in which the words “not to order” or any equivalent expression have been inserted’ and provides that such a cheque ‘can only be transferred according to the form and with the effects of an ordinary assignment’. In Italy, the statute provides for cheques marked ‘non-transferable’ to be payable only to the payee.224

  11. 11.  In principle, cheques are payable to the holder by the drawee bank either in cash over the counter, or to the holder’s bank account. Restrictions on payment, either in cash or to non-customers, can be imposed by using either ‘payable in account’ or crossed cheques. Both forms are recognized in the UCL.225 Only cheque crossing is provided under the BEA.226 Neither payable in account cheques nor cheque crossing exist in the USA. Crossed cheques are recognized227 but not used in Canada. With regards to civil law countries, crossed cheques are not recognized in Germany,228 while cheques payable in account are not provided for in Japan229 and France.230 Both forms exist in Switzerland.231

  12. 12.  A short six-month limitation period, running from the expiration of the time limit prescribed for presentment, is provided for by UCL art 52. In the USA, an action to enforce liability on a cheque is barred three years after the dishonour of the cheque or ten years after its date, whichever comes first.232 No limitation period is prescribed under cheque or negotiable instrument legislation in common law jurisdictions, and the matter may be governed in each place by general law. In Canada233 and the USA,234 until presentment for payment, the holder’s action against the drawee of a certified cheque is not barred by any limitation period. After presentment, the holder’s action is barred in the USA after three years. In Japan,235 an action on a certified cheque is barred one year after the expiration of the ten-day presentment period.

  13. (p. 28) 13.  The collection and payment of cheques into a bank account held at a bank other than the drawee bank is universally governed by interbank clearing rules. Such rules constitute an interbank agreement, binding and benefiting subscribing participating banks. The degree to which clearing rules indirectly bind or benefit bank customers, namely, the drawer and depositor of a cheque, is not uniform. In the USA, clearing rules are stated by statute to bind and inure to the benefit of parties not specifically assenting to them, such as bank customers.236

  14. 14.  In the USA only, there are statutory rules dealing with the time a cheque is ‘paid’, in the context of the failure to timely return it dishonoured.237

F.  Conclusion

1.47  ‘Negotiability’ has been the glue uniting three different types of financial instruments used domestically and internationally into one branch of law. Expediencies of commerce militate in favour of similar solutions to the diverse issues that have arisen in connection with the use of these instruments. At the same time, concrete solutions have strongly been flavoured with, if not anchored in, the various legal systems within which instruments have evolved. Thus, there exists a need for choice-of-law rules to ensure the smooth operation of international trade. Before moving to the analysis of these rules, the ensuing chapter will establish the basic thesis as to the variations amongst laws as premised on the diverse roots of these instruments in different localities, under various legal systems, and by references to different uses.

Footnotes:

1  E McKendrick (ed), Goode on Commercial Law (5th edn, Penguin 2016) (hereafter McKendrick, Commercial Law) 517.

2  According to D V Cowen and L Gering, Cowen The Law of Negotiable Instruments in South Africa Vol. One: General Principles (5th edn, Juta 1985) (hereafter Cowen and Gering, Negotiable Instruments) 94, the word ‘Wertpapier’ cannot be well translated to English, so that words such as ‘security’ or ‘commercial paper’ do not convey its accurate meaning.

3  Swiss Code of Obligations: English Translation of the Official Text (Swiss–American Chamber of Commerce 2003). On the German Wertpapier see in general L Dabin, Fondements du droit cambiaire Allemand (Faculté de droit de Université de Liège 1959) (hereafter Dabin, Fondements). For a comprehensive discussion on the German conceptual framework, and as to whether it sheds additional light on the nature of a negotiable instrument, see Cowen and Gering, Negotiable Instruments 79–98 (where a slightly different translation, albeit to the same effect, of the Swiss provision is reproduced at 82). Their negative conclusion as to whether the Wertpapier sheds additional light on the nature of a negotiable instrument at 110, is criticized by JT Pretorius’ book review in 1986, 103 SALJ 151 at 154–56. On the negotiable instrument as Wertpapier see also FR Malan, JT Pretorius, and SF Du Toit, Malan on Bills of Exchange, Cheques and Promissory Notes in South African Law (5th edn, LexisNexis 2009) 4, 7.

4  See eg G Gilmore, ‘The Commercial Doctrine of Good Faith Purchase’ (1954) 63 Yale LJ 1057, 1067, 1074.

5  J Marius, Advice Concerning Bills of Exchange (Horne 1684) 19, qualified (for lost instruments) in Pierson v Hutchinson (1899) 2 Camp 211, 170 ER 1132; Crowe v Clay (1854) 9 Exch 605, 156 ER 258.

6  See eg Bills of Exchange Act 1882 (UK), 45 and 46 Vict, c 61, s 71, as amended (hereafter BEA).

7  See eg Ontario Personal Property Security Act, RSO 1990, c P.10, defining ‘instrument’ in s 1 to include ‘any … writing that evidences a right to the payment of money and is of a type that in the ordinary course of business is transferred by delivery with any necessary endorsement or assignment’. See also the dispute in Germany as to whether only a negotiable instrument may be Wertpapier: Dabin, Fondements 243–44, in the context of his general discussion on the Wertpapier at 236–84.

8  See eg Sale of Goods Act 1979, c 54, s 21.

9  Cowen and Gering, Negotiable Instruments 23.

10  Z Chaffee Jr, ‘Rights in Overdue paper’ (1918) 31 Harv L Rev 1104, 1109.

11  But see sections D and E of this chapter as to the lack of this requirement under the Geneva Conventions.

12  Cowen and Gering, Negotiable Instruments 52.

13  According to JM Holden, The History of Negotiable Instruments in English Law (first published 1955, WM W Gaunt & Sons 1993) 44, , ‘[t]he spelling “endorse”, is more common than “indorse” in commercial practice’. At the same time, he goes on to say, ‘[t]he Bills of Exchange Act, 1882, adopted the spelling “indorse” ’. I should add that on that point, UCC Article 3 follows suit and uses ‘indorse’. In contrast, the Canadian spelling, reflected in the Bills of Exchange Act, RSC 1985, c B-4 (hereafter CBEA), is ‘endorse’.

14  Master v Miller (1791) 4 TR 320, 100 ER 1042; affd (1793) 2 Hy Bl 141, 126 ER 474.

15  A statutory form of assignment was ultimately introduced in England by s 25(6) of the Judicature Act 1873, 36 and 37 Vic 66.

16  Crouch v The Credit Foncier of England (1873) LR 8 QB 374 [380], 29 LT 259; see also eg Di Giulio v Boland [1958] OR 384, 13 DLR (2d) 510 [515] (Ont CA).

17  As in Milnes v Dawson (1855) 5 Ex 948, 155 ER 413 (hereafter, Milnes v Dawson) where the holder got the instrument by way of gift. See Cowen and Gering, Negotiable Instruments 36.

18  In such a case the owner’s right to give a discharge was recognized (albeit as obiter) in Milnes v Dawson.

19  As in Mason v Morgan (1834) 2 Ad & El 30, 111 ER 12 and Stone v Rawlinson (1745) Willes 559, 125 ER 1320.

20  To confuse matters further—even an owner may have an unlawful possession as eg where he or she has unlawfully took the instrument from a pledgee.

21  As proposed by Chalmers in AG Gleeson, Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (18th edn, Sweet & Maxwell, Thomson Reuters 2017) 1-022 (hereafter Gleeson, Chalmers and Guest).

22  An extensive study is A Barak, The Nature of a Negotiable Instrument (Jerusalem Academic Press 1983) [in Hebrew] 23–139.

23  McKendrick, Commercial Law 517.

24  Gleeson, Chalmers and Guest 5-067.

25  On this point, we agree with Cowen and Gering, Negotiable Instruments 105 that in this sense the contract is not unilateral.

26  That is, all ‘contracts in writing … [which are] merely written and not specialties, … are parol’ and require consideration. Rann v Hughes (1778) 7 TR 350n, 2 ER 18.

27  P Ellinger, ‘Negotiable Instruments’ in U Drobnig and K Zweigert (eds), International Encyclopedia of Comparative Law, vol IX of U (JCB Mohr 2000) 18, 88–89 (hereafter Ellinger, ‘Negotiable Instruments’). In civil law, in the footsteps of Roman law, in the absence of the (common law) consideration requirement, an informal contract is based on some ‘cause’ other than the adherence to a formula, such as the delivery of an object or the actual agreement of the parties; hence, informal contracts are also called ‘causal’. RW Lee, The Elements of Roman Law with a Translation of the Institutes of Justinian (4th edn, Sweet & Maxwell 1956) 287, who goes on to discuss how ‘In the course of time abstract contracts tend to become causal.’

28  A Barak, ‘The Nature of the Negotiable Instrument’ (1983) 18 IsLR 49, 75.

29  See in general A Barak, ‘The Requirement of Consideration for Bills or Notes in Israel’ (1967) 2 IsLR 499, 500–05. See also B Crawford, The Law of Banking and Payment in Canada, vol 3 (Canada Law Book, Looseleaf, 2014 edition) ss 20:30.20(2) and 21:40.80(3).

30  See eg Chat and Edgar Case (1663) 1 Keble 636, 83 ER 1156.

31  See CBEA, governing ‘a bill [containing] words prohibiting transfer, or indicating an intention that it should not be transferable’.

32  A W Rogers, Falconbridge on Banking and Bills of Exchange (7th edn, Canada Law Book 1969) 456 (hereafter Rogers, Falconbridge on Banking). Most certainly, he used ‘bills’ to include ‘cheques’.

33  See eg Goodwin v Robarts (1875) LR 10 Exch 337, affd. (1876) 1 1 App Cas 476, [1874-80] All ER Rep 628 (HL); Bechuanaland Exploration Co. v London Trading Bank Ltd [1898] 2 QB 658; and Edelstein v Schuler &Co. [1902] 2 KB 144, [1900-3] All ER 884. See scholarly discussion by EP Ellinger, ‘Legal Problems of Modern Commercial Paper’ (1990–91) 6 BFLR 65, 69–71.

34  McKendrick, Commercial Law 517.

35  Uniform Commercial Code (US) (hereafter UCC): While UCC Article 8—Investment Securities (1994) does not mention the term, the Prefatory Note specifically stresses (in (II)(B)) the application ‘to investment securities [of] the principles of negotiable instruments law’ as a ‘principal’ or ‘primary’ purpose of the enactment. See eg UCC § 8-303, providing for the acquisition of a security by a ‘protected purchaser’ free of ‘any adverse claim’.

36  For a negotiable document of title, see eg UCC § 7-104.

37  That is, it could be either material or procedural, or even if material, could be limited to freedom from either contract defences or adverse claims.

38  The Colonial Bank v Cady and Williams (1890) 15 App Cas 267, 60 LJ Ch 131.

39  Re Ex Parte Asiatic Banking Corporation (1867) LR 2 Ch App 391 [397]; Re Goy & Co. Ltd. [1900] 2 Ch 149 [154].

44  The Allgemeine Deutsche Wechselordnung of 1848 https://archive.org/details/protocollederzur00mannuoft/page/n9, accessed 20 December 2019.

45  BEA.

46  [1944] AC 176, [1944] 2 All ER Rep 83 [86].

47  Bank of England v Vagliano Bros [1891] AC 107, [1891-4] All ER Rep 93 [44] (Lord Herschell).

49  Jurisdictions with the year of adoption by each are listed by Rogers, Falconbridge on Banking 431–32.

50  No 364 of 1964 (proclaimed 1 March 2001) (hereafter SABEA).

51  The Bills of Exchange Ordinance [New Version] 1957, Laws of the State of Israel, p 12 (hereafter IBEO).

52  Bills of Exchange Ordinance, Cap. 92.

53  CBEA.

54  ibid, s 9.

55  Civil Code of Québec, CQLR c CCQ-1991.

56  This rule goes back to a case decided on the pre-BEA law in Quebec: Guy v Paré (1892) 1 Que SC 443.

58  Bills of Exchange Act 1909 (last amended by Act No 46 of 2011).

60  Act No 26 of 1881.

61  MS Parthasarathy, JS Khergamvala on the Negotiable Instruments Act (17th edn, Tripathi 1990) 1. The quote does not appear in the 20th edn of 2018.

62  UCC Article 3—Negotiable Instruments (2002).

63  Completed in 1896 and adopted by all states by 1924. See Cowen and Gering, Negotiable Instruments 121.

64  Adopting jurisdictions are listed at <https://www.uniformlaws.org/committees/community-home?CommunityKey=d6a2022c-ae5d-4fda-baf5-c1628a68168e >, accessed 20 December 2019.

66  143 LNTS 257 (7 June 1930), Annex I (hereafter UBL).

67  143 LNTS 355 (19 March 1931), Annex I (hereafter UCL).

69  ibid, 56–80.

70  Vgl Bekanntmachung, 30 November 1933, RGBl II 974.

72  Décret.- L. 30 October 1935 introduced (with modifications) into the Code de Commerce both the UBL (CC arts 110 et seq—Bills and Notes Provisions) and the UCL (hereafter French Cheques Law). The former are now New CC arts L. 511-1 à L. 511-81 and the latter has been integrated by an ordinance of 14 December 2000 (JO 16 December 2000) into a new Code monétaire et financier, as arts L. 131-1 to L.131-87.

74  ibid, 57, and for details see 80–84.

75  Negotiable Instruments Law of the Peoples Republic of China (as amended 28 August 2004). For further discussion on the unification efforts and the ‘great divide’ between common and civil law jurisdictions, see Chapter III section C.

76  UN Doc A/RES/43/165, 42 Yearbook of the United Nations 1988 (UN 1988) 834 (hereafter UNIBNC).

77  Cowen and Gering, Negotiable Instruments 131–32. Comprehensive commentary can be found in (1979) 27 Am J Comp L 507–63. This includes an overview of the legislative process by WC Vis, discussion on the formal requisites of bills and notes by N Penney, review on instruments denominated in a foreign currency by AG Guest, analysis on forged endorsements by WC Vis, and a selected bibliography.

78  Only Canada, Russia, and the USA signed and five other countries accessioned to it. This fell short of the ‘10 actions … required for entry into force’. See UNCITRAL, ‘Status: United Nations Convention on International Bills of Exchange and International Promissory Notes’ (New York, 1988) (5 February 2019) http://www.uncitral.org/uncitral/en/uncitral_texts/payments/1988Convention_bills_status.html, accessed 20 December 2019.

79  BEA s 89 and UBL art 77.

80  BEA s 73.

81  BEA s 3; UBL art 1: UCC § 3-104(b)(e) in conjunction with 104(a); UNIBNC art 3(1) (for the international dimension see art 2(1)).

82  BEA s 83; UBL art 75: UCC § 3-104(b)(e) in conjunction with § 3-104(a); UNIBNC art 3(2) (for the international dimension see art 2(2))

83  BEA s 73; UCC § 3-104(b)(f); effectively UCL art 1.

84  Defined in UCC § 3-104 (j) as ‘an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money’, which as such ‘is a note of the bank’.

85  Defined in UCC § 3-104(i) as ‘an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term “traveler’s check” or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument’.

86  Defined in UCC § 3-104(g) to mean ‘a draft with respect to which the drawer and drawee are the same bank or branches of the same bank’.

87  Defined in UCC § 3-104 (h) to mean ‘a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank’.

88  BEA s 3; UBL arts 1 and 75 (no ‘bearer’ option other than by indorsement under art 12); UCL art 5; UCC § 3-104(a); there is no bearer option under then UNIBNC.

89  BEA s 3; UBL arts 1 and 2; UCL art 28; UCC § 3-104(a); UNIBNC arts 3(1)(b) and 3(2)(b).

90  BEA s 31; UBL art 11; UCL art 14; UCC § 3-201; UNIBNC art 13. The term ‘negotiation’ appears only in the BEA, UCL and in UCC Article 3 (but not in the UBL). An indorsement that does not designate the transferee is an ‘indorsement in blank’, which effectively ‘converts’ the bill into one payable to the bearer. This is true even where instruments originally issued payable to the bearer are not recognized for the ‘conversion’ by blank indorsement of the bill payable to order see eg BEA s 34(1); UBL arts 12–13; UCL arts 15–16; UCC § 3-205; UNIBNC arts 13–16.

91  Fundamentally, these conditions refer to the taking of the instrument by the holder in good faith, without knowledge, and for value. See eg BEA s 29(1); UBL arts 16–17; UCL arts 19 and 21–22; UCC § 3-302; UNIBNC art 29.

92  BEA s 38(2); UBL arts 16–17; UCL arts 19 and 22; UCC (n 35) §§ 3-305 and 3-306; UNIBNC art 30. For example, a bona fide purchaser from a thief of a note payable to the bearer will defeat both the adverse claim of the person from whom the instrument was stolen and contract defences available to the maker against the party to whom the maker issued the note.

93  BEA s 2; UNIBNC art 5(f) in conjunction with art 15.

94  BEA s 23; UBL arts 7–8; UCC § 3-401; UNIBNC art 33.

95  UCL art 17 (1935); art 20 (2000); Bills and Notes Provisions art 116 (1935); at present L511-7. For la provision in French law, see eg J Stoufflet, Instruments de paiement et de credit (8th edn, LexisNexis 2012) 115–25; and for a summary, Ellinger, ‘Negotiable Instruments’ 110–13. See also G Ripert and R Roblot, Traité de droit commercial (13th edn, Librairie gènèrale de droit et de jurisprudence 1992) 181–86. For a more extensive analysis, see P Lescot and R Roblot, Les effets de commerce, vol 1 (Rousseau 1953) 389–465.

96  BEA s 53(2).

97  Though not necessarily in French-based systems, for which see in general Ellinger, ‘Negotiable Instruments’ 70–72.

98  UCC § 3-408. See also BEA s 53(1) (almost verbatim).

99  ibid. See also UNIBNC arts 37 and 40. cf UBL arts 21, 25, and 28.

100  See eg BEA s 75 (‘The duty and authority of a banker to pay a cheque drawn on him by his customer are determined by—(1) Countermand of payment: (2) Notice of the customer’s death’); UCC § 4-403; and cf UCL art 32.

101  BEA s 54(1): UBL art 28; UNIBNC art 40.

102  BEA s 88(1): UBL art 78; UNIBNC art 39.

103  BEA s 53(1); UBL art 9 (in conjunction with arts 43–45); UCL art 12 (in conjunction with art 40); UNIBNC art 38.

104  BEA s 53(2); UBL art 15 (in conjunction with arts 43–45); UCL art 18 (in conjunction with art 40); UNIBNC art 44.

105  UBL arts 32 and 39; UCL art 27; UNIBNC arts 46–47.

106  BEA s 28; UCC § 3-419. For further discussion on the point of ‘avalist’, see Chapter V, the text accompanying nn 30–38.

107  BEA s 56. In Canada where the corresponding provision (CBEA s 130) contains a variation, the aval contract was read into the statute. Gallagher v Murphy [1929] SCR 288.

108  For a more detailed discussion on the practical uses of negotiable instruments see Ellinger, ‘Negotiable Instruments’ 19–21.

109  Re Charge Card Services Ltd. [1989] Ch 497, [1988] 3 All ER 702 [707] (CA).

110  UCC § 3-310.

111  A scholarly detailed discussion is by A Barak, ‘The Uniform Commercial Code—Commercial Paper: An Outsider’s View’ (1968) 3 Isr LR, Part I 7; Part II 184.

112  CBEA ss 13–15.

113  CBEA Part V.

114  UCC § 3-305. The position of a holder not in due course under the BEA is better: Lamont (James) & Co. v Hyland Ltd [1950] 1 KB 585, [1950] 1 All ER 341 (CA).

115  A notable BEA exception following the UCC at least in part is SABEA s 72B requiring a limited category of bank customers to ‘exercise reasonable care in the custody of cheque forms and in the reconciliation of its bank statements’.

116  UCC § 3-406.

117  UCC § 4-406.

118  See UCC § 3-404 (impostors; fictitious payees); § 3-405 (employer’s responsibility for fraudulent indorsement by employee).

119  BEA s 60.

120  For example, s 4 in the UK Cheques Act 1992, c 32 (as amended by the Cheques Act 1992) (hereafter UK Cheques Act).

121  Cowen and Gering, Negotiable Instruments 124–31. In more detail see Ellinger, ‘Negotiable Instruments’ 86–159. See also WG Crauford, ‘Differences between the English and the German Law Relating to Negotiable Instruments’ (1957) 6 ILCQ 418. For earlier discussions see eg EG Lorenzen, The Conflict of Laws Relating to Bills and Notes (Yale University Press 1919) 17–58; M Hudson and AH Feller, ‘The International Unification of Laws Concerning Bills of Exchange’ (1930) 44 Harv L Rev 333, 346–70; HC Gutteridge, ‘The Unification of the Rules of Conflict Relating to Negotiable Instruments’ (1934) 16 J Comp Legis & Int’l L 53.

122  Other than the payee, a holder must take by ‘negotiation’, which in turn, for a bill payable to order, must be made by a previous holder (BEA s 31(3); UCC § 3-201(b)), which the taker under a forged indorsement, not himself taking from a holder, is not.

123  BEA s 24; UCC § 3-403.

124  BEA s 59(1); UCC § 3-602(e).

125  BEA s 29(1)(b): UCC § 3-302(a)(2).

126  UBL art 16.

127  BEA s 38(2); UCC § 3-305(b).

128  BEA s 29(1)(b).

129  UCC § 3-302(a)(2).

130  A point addressed by Cowen and Gering, Negotiable Instruments 127–28 and n 89. In fact, ‘good faith’ is defined differently under the BEA s 90 and the UCC § 1-201(b)(20)).

131  UBL arts 1 and 75.

132  BEA ss 3(1) and 83(1): UCC § 3-104.

133  For a detailed discussion see Ellinger, ‘Negotiable Instruments’ 89–103.

134  A Grisoli, ‘Uniform Law of Bills of Exchange from the Standpoint of Anglo-American Law’ (1958–59) 33 Tul L Rev 289, 291. He also argues (in my view unpersuasively) to a fundamental difference in the theory of liability at 293–96.

135  Such as BEA ss 27 and 30; UCC § 3-303.

136  For ‘causa’, or cause, as reason or grounds for the binding effect of an informal contract in Roman and civil law see in general A Berger, Encyclopedic Dictionary of Roman Law (American Philosophical Society, 1953) 382.

137  See also ‘reasonable certainty’ in BEA ss 6 and 7; ‘reasonable time’ in s 20, ‘reasonable hour’ and ‘reasonable diligence’ in s 41. The word is also used in BEA ss 45, 46, 49, 50, 51, 74, and 86.

138  UBL art 1(6).

139  ibid, art 75(5).

140  BEA s 3(1).

141  UCC § 3–104(1).

142  UCL art 5.

143  UBL art 12.

144  ibid, art 44.

145  BEA s 51.

146  UCC § 3-505(b).

147  See Official Comment 2 to UCC § 3-414; Official Comment to § 3-505. In Chapter V of this book, we will say much more on the ‘protest’ requirement, its origins and relevancy in nowadays reality. See Chapter V section A(2).

148  BEA ss 48 and 50.

149  UCC §§ 3-503 and 3-504.

150  UBL art 45(6).

151  ibid, arts 30–32.

152  Cf BEA s 56, stranger signing bill is liable as indorser.

153  SABEA s 54A.

154  BEA s 71.

155  UBL arts 64–66.

156  ibid, arts 67–68.

157  For a detailed discussion, see B Geva, Bank Collections and Payment Transactions (Oxford University Press 2011) 131–85.

158  See eg M Vasseur and X Marin, Le Cheque (Sibey 1969) 9–11. For the origins and early development of cheques in England, see eg JM Holden, The History of Negotiable Instruments in English Law (The Athlone Press 1955; reprinted by Wm W Gaunt & Sons Inc 1993) 204–43.

159  N Wolfe, ‘Cheques and Cheque Legislation in the UK and Canada: Separate Paths in the Past, Converging Paths in the Future?’ (2012) 28 BFLR 47.

160  For a comparative study, as part of the law of bills and notes in general, particularly see Ellinger, ‘Negotiable Instruments’ 160–75.

161  UCL arts 19 and 21. However, in the UCL there is no parallel to UBL art 40(2), protecting a payer, as long as he or she ‘has [not] been guilty of fraud or gross negligence’.

162  UCL art 1.

163  ibid, art 19. Neither a forged indorsement nor lack of value will preclude a superior title.

164  ibid, arts 19 and 22.

165  ibid, arts 25–27.

166  At the same time none of the three statutes address a copied cheque.

167  UCL art 40.

168  See eg BEA ss 3(1) and 73 in the UK; UCC § 3-104(f) in the USA and art 1 in the UCL.

169  UCL arts 1 and 3.

170  See review by Ellinger, ‘Negotiable Instruments’ 161–62.

171  CBEA.

172  IBEO.

173  SABEA.

174  Cheques Act 1986 (last amended by Act No 61, 2016) (hereafter Australia Cheques Act).

175  UK Cheques Act.

176  Cheques Act (Scheckgesetz) of 14 Aug 1933, RGBI. I 597, last amended by ordinance of 31 Aug 2015 BGBI. I p 1474 (hereafter Germany Cheques Act).

177  RD 21 December 1933, n 1736, as supplemented by L. 15 December 1990, n 386 (hereafter Italy Cheques Law).

178  Law on Cheques 1933, Law No 57 of 29 July 1933 (as amended by Law No 61 of 1991) (hereafter Japan Cheques Law).

179  CC 220 Federal Act of 30 March 1911 on the Amendment of the Swiss Civil Code (Part V: The Code of Obligations) arts 1100–44 (hereafter Swiss Cheques Law).

180  French Cheques Law.

181  UCC Article 4.

182  UCL art 29.

183  BEA s 46(1).

184  UCC § 3-409.

185  See eg Maubach v Bank of Nova Scotia (1987) 60 OR (2d) 189 (HCJ), affd (1987) 62 OR (2d) 220; and A.E. Le Page Real Estate Services Ltd. v Rattray Publications (1991) 5 OR (3d) 216 (Gen Div), affd. (1995), 21 OR (3d) 164 (CA). See in general B Geva, ‘Irrevocability of Bank Drafts, Certified Cheques and Money Orders’ (1986) 65 Can Bar Rev 107, 123.

186  French Cheques Law art 4 (1935) art L 131-5 (2000).

187  Italy Cheques Law art 4(2).

188  Japan Cheques Law arts 53–58.

189  SABEA s 72A.

190  The prohibition to certify cheques is considered as derived from art 4 of the Germany Cheques Act, modelled on art 4 of the UCL, precluding the acceptance of a cheque.

191  See s 23 of the Deutsche Bundesbank Act of 26 July 1957, BGBI. I 745.

192  UCL art 4.

193  UCC § 3-411.

194  See definitions in UCC § 3-104.

195  For a definition see UCC § 3-104(b)(e) in conjunction with § 3-104(a).

196  BEA s 73 and UCC § 3-104(f). The US spelling is ‘check’.

197  UCL art 28.

198  ibid, art 29.

199  UCC § 4-401(c).

200  See eg Shapiro et al v Greenstein (1969) 10 DLR (3d) 746 (Que CA). Under ACSS Rule A1 s 10 ‘[n]o Item that is post-dated shall be Exchanged, for the purpose of Clearing and Settlement’.

201  BEA s 75. The effect of s 75A is to extend the right to Scotland, notwithstanding the effect of BEA s 53(2), discussed in the text accompanying n 96.

202  UCC § 4-403.

203  Australia Cheques Act s 6(2).

204  BEA s 75.

205  UCC § 4-405.

206  Australia Cheques Act s 90(2).

207  UCC § 4-405.

208  IBEO s 75.

209  Australia Cheques Act s 90(2).

210  UCC § 4-405.

211  SABEA s 73.

212  Kpohraror v Woolwich Building Society [1996] 2 LRC 526, [1996] 4 All ER 119 (CA).

213  UCC § 4-402(b).

214  French Cheques Law s 65(2) (1935); art 131-70(2) (2000).

215  BEA s 8(2); UCL art 5; UCC § 3-104(a). There is no consensus as to a cheque payable to a name payee rather than to that person’s order.

216  BEA s 31; UCL art 14(1) (with respect to cheques not payable to the bearer); UCC § 3-201. Surprisingly, the term does not appear at the UBL.

217  BEA s 2; UCL art 16; UCC § 3-204.

218  BEA s 29(1); UCL arts 21–22; UCC § 3-302.

219  BEA (s 38(2); UCL arts 19 and 22; UCC § 3-305.

220  BEA s 73.

221  [1891] 1 QB 435.

222  SABEA s 75A.

223  In fact, UCC Article 3 is silent as to restrictions on transferability other than by the omission of the word ‘order’, which is to be disregarded. Arguably, however, the combined effect of § 3-104(c) and (d), at least by implication, is that in connection with cheques, any restriction on transferability, and not only on negotiability (in the sense of passability free of any defence or adverse claim into the hands of a holder in due course), is ineffective.

224  Italy Cheques Law art 43.

225  UCL arts 37–39.

226  BEA ss 76–82.

227  CBEA ss 168–175.

228  While the provisions relating to crossed cheques are included in the Cheques Act, they are not in force. According to art 1 sentence 2 of the Introductory Act on the Cheques Act of 14 Aug 1933, RGBI. I 605, ‘articles 37, 38 [of the Germany Cheques Act] on the crossed cheque enter into force only at a later point of time which will be determined by the Imperial Minister of Justice’. So far, the provisions have not been proclaimed in force. Nor is such proclamation expected to take place in the foreseeable future. A crossed cheque issued outside Germany is treated as a cheque payable in account. Whether a domestic crossed cheque is to be treated either similarly, or like an ordinary cheque, payable in cash, has not been settled.

229  Where crossed cheques are recognized in Japan Cheques Law arts 37–38.

230  Foreign cheques payable in account are treated as crossed cheques. Japan Cheques Law arts 37–39.

231  Swiss Cheques Law arts 1123–27.

232  See UCC §§ 3-401(a), 3-414(b) (together with Official Comment 2, characterizing the drawer’s liability, in departure of former law, as primary), and 3-118(c) (together with Official Comment 3).

233  This is so with respect to Canadian funds cheques, of $500 or more, certified by chartered banks. See Bank Act, SC 1991, c 46, s 438 and Bank of Canada Act, RSC 1985, c B-2, s 22(1) as amended by SC 1991, c 46, ss 582 and 583; SC 1991, c 48, s 494; SC 1997, c 15, s 100; SC 1999, c 28, s 97; SC 2001, c 9, s 196; SC 2007 c 6, s 394; SC 2012, c 5, s 183. See B Geva, ‘Lost Cheques, Certification and Countermand—Is the Law Satisfactory?’ (1987–8), 2 BFLR 357.

234  UCC § 3-118(d).

235  Japan Cheques Law arts 53–58 in conjunction with art 29.

236  UCC § 4-103(b).

237  ibid, §§ 4-215 and 4-302.