Bills of Exchange and Negotiable Instruments
The law of bills of exchange, promissory notes, cheques, and other negotiable instruments under the Bills of Exchange Act 1882 and Cheques Act 1957.
Introduction
Negotiable instruments are written documents that pass title by delivery (and, where required, indorsement) free from defects in title in the hands of a holder in due course. The Bills of Exchange Act 1882 codifies the common law of bills of exchange, promissory notes, and cheques. The Cheques Act 1957 supplements it. Although physical cheques have declined sharply, the underlying doctrine still governs cross-border trade finance, banker's drafts, and the documentary credit framework under the UCP 600. The concept of negotiability — and the protection it gives a 'holder in due course' — is the most distinctive feature.
In Brief
A bill of exchange is an unconditional written order to pay money (s.3 Bills of Exchange Act 1882). A cheque is a bill drawn on a banker payable on demand. Promissory notes are similar — an unconditional written promise to pay (s.83). All are 'negotiable': title passes by delivery (and indorsement where required), and a 'holder in due course' takes free from prior defects of title — the doctrine that makes negotiable instruments uniquely valuable in commerce.
Core Principles
Definition of a bill of exchange — Bills of Exchange Act 1882 s.3: an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.
A cheque is a bill of exchange drawn on a banker payable on demand (s.73).
Holder in due course — s.29: a holder who took the instrument complete and regular on its face, before maturity without notice of dishonour, in good faith and for value, without notice of any defect in title.
A holder in due course holds the instrument free from any defect of title of prior parties and may enforce payment against all parties liable on the bill.
Indorsement — the means by which order instruments are negotiated (s.31).
Crossing of cheques (s.76) and the protection given to a paying banker who acts in accordance with the crossing (Cheques Act 1957 s.4).
Key Statutes
Bills of Exchange Act 1882
Cheques Act 1957
Cheques Act 1992
Leading Cases
Jones v Waring & Gillow
[1926] AC 670
Lloyds Bank v Savory & Co
[1933] AC 201
Marfani & Co Ltd v Midland Bank
[1968] 1 WLR 956
Yeoman Credit v Gregory
[1963] 1 WLR 343
Hasan v Willson
[1977] 1 Lloyd's Rep 431
Frequently Asked Questions
Are cheques still used in the UK?
Use has fallen sharply — most people use bank transfers or cards. But cheques remain legally valid, important in some commercial settings (deposits, conveyancing), and used in international trade through documentary credit instruments. The Cheques Act 1992 introduced 'account payee only' crossing which prevents endorsement to a third party.
What is a 'holder in due course'?
A person who took the instrument before it was overdue, in good faith, for value, and without notice of any defect in the giver's title (s.29). A holder in due course can enforce payment free from many defences that would defeat an ordinary holder — the central commercial benefit of negotiability.
Is a bank obliged to honour a cheque?
Yes, if there are sufficient cleared funds (or agreed overdraft) and the cheque is regular on its face. A bank that wrongly dishonours a cheque is liable to the customer for damages, particularly where the customer is a trader and the dishonour is publicised. There are also crime-mitigation duties under banking regulation that may justify temporary refusal.
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