23. In its most general form a Bill of Exchange is a letter from a Creditor to his Debtor, ordering him to pay (1st) a certain sum of money: (2nd) to a certain person: (3rd) at a certain event.

The definition of a Bill of Exchange usually given is essentially defective: because it is usually said to be an Order from A to B to pay C, or order, a sum of money. Now it is true that all Bills of Exchange are Orders to pay money, but all Orders to pay money are not Bills of Exchange.

It is essential to the nature of a Bill of Exchange that it should be addressed to the person who owes the money as a Debtor. If the order be addressed to a person who merely holds the money as a Depositum, as a Bailee, Trustee, Agent, or Servant of the writer, it is not a Bill but a Draft: and there are most important Economic distinctions between the two Instruments.

The usual form of a Bill of Exchange is as follows -

£287,,15,,8. London, May 4, 1875.

Three months after date pay to myself (or A. B.) or order, the sum of Two hundred and eighty seven pounds fifteen shillings and eightpence for value received.

William Smith.

To Mr. John Cox, Linendraper,

Strand, London.

The Creditor who addresses the letter is termed the Drawer: the Debtor to whom it is addressed is termed the Drawee: and the person to whom it is to be paid is termed the Payee,

It is the payee's business on the first convenient opportunity after he has received the letter to present it to the Drawee to know if he will pay it. If he agrees to do so it is usual for him to write his name with the word "accepted" across the face of the Bill: he is then termed the Acceptor.

The drawer may make the bill payable either to himself or to his order: or to a third person or to his order. If it were made payable to the drawer only, or to a third person only, without inserting the words "or order," the bill before the recent statute, could only be paid to the person named, and could not be transferred to any one else so as to enable him to sue in his own name - that is it could not be Negotiated, as it is termed. Such Instruments were said to be Non-Negotiable: whereas Instruments made payable to the Payee, or order, were said to be Negotiable, because they might be transferred to any one else.

But this distinction is now abolished: any Bill, whether made payable to order or not, may be freely transferred, and the presentation of the Bill to the acceptor for payment is a sufficient notice to him of the transfer of the Debt.

When the words "or order" were inserted after the Payee's name he was obliged to signify this order by writing his name on the back of the Bill: hence it is called an Indorsement: the person who does it is called the Indorsee: and the person to whom it is delivered is called the Indorsee.

The Indorsee may, if he pleases, indorse it again to some one else; and if he makes it payable to that person only, it is called a special indorsement, and can only be paid to him: but if he delivers it over to the Indorsee simply with his name written on the back, it is called a general indorsement, or an indorsement in blank. Its effect is to make the bill transferable by mere delivery, without any further indorsement, exactly like a bank note or money, and the bill is then payable to bearer like a bank note.

Formerly indorsement was in all cases necessary to transfer the property in a Bill or Note: but this has long ceased to be the case in English Law. It became the custom of merchants in England, which has long acquired the force of Law, that any Instrument of Credit indorsed in blank may be transferred by simple delivery without any further indorsement.

It is however still the custom to indorse them on a transfer - at least there are very few persons who would take them without indorsement. And the effect of the indorsement is this - that if the bill is not paid by the acceptor at maturity, and if the owner or holder of it gives immediate notice to any or all of the preceding parties to it, he has the right to enforce payment of it from them.

But this demand for payment must be made without delay, in almost all cases within 24 hours after the fact of non-payment is known to the holder. If delay be made in notifying the fact and demanding payment from the parties liable, they are absolved, and the holder's remedy is gone.

Thus in modern practice, the indorsement is merely a limited warranty of soundness. There is no other difference between buying goods or money with a bill, with or without indorsement, than between buying any other such article as a horse, a watch, or a carriage, with or without a limited warranty. It is in all cases a Sale. In the case of a bill taken without an indorsement, or a horse bought without a warranty, the sale is final and conclusive : in the case of a bill taken with an indorsement, or a horse bought with a warranty, the sale may be cancelled if the defect be discovered, and the demand made within the time limited, otherwise it is also final and conclusive.

The general rule of English law now is that if any Instrument of Credit whatever, whether it be a Bank Note or a Bill of Exchange, be taken in exchange for goods or money in any transaction without indorsement: or if the period allowed for making the claim in the case of an unpaid bill be suffered to elapse, it is a final closing of that transaction, and the receiver has no remedy against the transferor, if the instrument is not paid. The payment is, in fact, in all respects as valid and final as if it were money.

Except only in the case of fraud, where the payer knew that the banker, or person, whose Note or Bill he tendered was bankrupt or insolvent.

It is usual in English bills to insert the words "for value received," but it is not necessary. In a recent case it was said that they have no more meaning than "your obedient servant" at the end of a letter.

A Promissory Note is an absolute Promise to pay (1st) a certain sum of money: (2ndly) to a certain person: (3dly) at a certain event. It is usually expressed thus -

£143,,4„9.

London May 4th 1875.

Three months after date I promise to pay John Stiles, or order, the sum of one hundred and, forty three pounds four shillings and ninepence, for value received.

Timothy Gibbons

In this case Timothy Gibbons is called the Maker of the Note and John Stiles the Payee.

Promissory Notes were in reality by the Common Law of England as valid as Bills of Exchange, in fact formerly it was quite as usual to draw Bills of Exchange in the form of Promises to pay as in that of Orders to pay. This however escaped observation, and a strange idea took possession of Lord Holt and the Court of King's Bench in 1691-1704 that Promissory Notes were not recognised by the Law Merchant and the Common Law: in consequence of these decisions the Act, Statute 1704, c. 8, was passed placing Promissory Notes exactly on the same footing as inland bills of exchange, that is making them transferable by indorsement on each separate transfer.

In the case however of Bank Notes (by which in Law is always meant Bank of England Notes), as these were always payable on demand, and the payment was quite secure, the practice of indorsement soon fell into disuse, and they passed from hand to hand like money. In the case of private bankers of good credit the indorsement was often omitted. But though the ceremony of indorsement was omitted as superfluous, that in no way altered the character of the Instrument, and the receiver of the Note took it entirely at his own peril, and ran exactly the same risk as if he took any other Instrument of Credit without indorsement.

On Banking Instruments Of Credit

24. The Bills of Exchange and Promissory Notes just described may be called Commercial Instruments of Credit, because they arose out of the transactions of merchants. The introduction of Banking into England gave rise to two new forms of Paper, which may be called Banking Instruments of Credit.

The essential nature of "banking" is, as we shall shew hereafter, to buy Money and Commercial Debts by creating Credit, or Debt payable on demand. When a customer had so much Credit at his account, the Banker would if he wished it give him a Promissory Note payable to bearer on demand, or at such other time as might be desired; this is called a Banker's Note.

Or the customer might write a note to his banker desiring him to pay any sum at his Credit to any one or to bearer on demand or at such other time as he named. This was formerly called a Cash Note, but is now called a Cheque.