• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

What are the advantages of a bill of exchange over other methods of payment?

Extracts from this document...


What are the advantages of a bill of exchange over other methods of payment? The definition of a bill of exchange is set out in Section 3 of the Bills of Exchange Act 1882: (1) A bill of exchange is an unconditional order in writing, addressed by one person to another...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. In effect the bill works in the following way; Person A, the drawer of the bill, draws a bill on B, the drawee, ordering him to pay money at some point to C, the holder of the bill (C can also be referred to as the payee or the indorsee). There are two kinds of bill: a bearer bill and an order bill. The former instructs the drawee to pay the person in possession of the bill. The latter instructs him to pay the person whose name it is indorsed to.1 A bill can also be payable on demand or by acceptance. An example of the former of these is a cheque. This instrument is in many ways different to other forms of bill of exchange, which in some cases causes authors to put them into a separate category. S, however, the truth of these instruments is that they are a species of a bill of exchange and consequently I shall not treat them separately for the purpose of this essay. ...read more.


Although in some circumstances this principle may seem harsh there are many reasons as to why it is better than the provisions for other methods of payment. One such reason is that, as a negotiable instrument, the bill can be passed to third parties that are no party to the original contract of sale. They should therefore be able to take free from any defects or defaults under the original contract. If they could not then the security and marketability of the bill of exchange would be undermined. A second reason is that s3 BoEA states that bills of exchange are 'unconditional orders in writing'. Their payment could not therefore be contingent on the goods being correct or deliverable or subject to the buyer accepting the goods. Thirdly, it has been stated by many authors and in the judgements of cases that bills of exchange 'are taken as equivalent to deferred installments of cash'.5 If this were not the case then it is impossible to see how a bill of exchange could be in any way different from a credit agreement. Another consequence of the autonomy principle is the relaxation of the contract rules with respect to bills of exchange, especially in the area of consideration. Details of the consideration allowed is set out in s27(1) of which part b is of special importance. This states that consideration can be an antecedent debt or liability. ...read more.


The bill of exchange in this situation offers little security and the benefits of the documentary credit are greater. The bill of exchange is very important in the world of commerce and it is no wonder that mercantile custom would come up with such a valuable and advantageous concept. 1 Note here that there are two kinds of indorsement. The drawee will only be able to pay the indorsee if there has been a special indorsement, i.e. the indorsor has written the name of the indorsee on the bill. If the indorsement is made in blank the bill is converted into a bearer bill and the drawee will pay whoever is in possession of it at the time of maturity. 2 [1977] 1 WLR 713. It must be remembered that this characteristic is also shared by documentary credits. 3 Sale of Goods Act 1979 s18 rule 1 4 section 39 and 41 SGA 5 Nova (Jersey) Knit v Kammgarn Spinnerei GnbH [1977] 1 WLR 713 per Lord Wilberforce. 6 Note that Goode does not follow this argument and believes that no such exception is created. He believes that it is merely reinforcing 'the well and established common law rule that a payment or transfer of an existing debt is made for value, for the creditor's right to payment is thereby extinguished. 7 Ss54-56 Bills of exchange Act 1882 8 Professor Goode: Commercial Law p526. 9 See s136 Law of Property Act 1925 10 this is in effect a bona fide purchaser of the bill for value without notice of any defects. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Contract Law section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Contract Law essays

  1. Passing of property

    Quality is further discussed in Section 14 (2B) & (2D) - F. Quality is concerned with condition, appearance, freedom from minor blemishes, fitness for a common purpose, safety and durability. Any public statements that are made about a product are seen as relevant circumstances e.g., an advert. Section 14 (2B)

  2. Traders and the sales of Goods Act

    Under the old law, the buyer was deemed to have accepted the goods by retaining them for more than a reasonable length of time without intimating to the seller that he had rejected them. Under the new law, the 'reasonable length of time' includes a reasonable opportunity to examine the

  1. Contracts for the International Sale of Goods (CISG).

    The Convention has some restrictions on the applicability of national sources of law on the regulation of the international sale contract, and being England the country with the largest history of legal system in the field, it would be ironic if the creator of the rule used or intended to

  2. Privity of contact rule

    Since the machine was damaged while it was being unloaded, the owner sued the stevedores. Although the stevedores were only the third party to the contract, they were recognised the right to rely on some clause set out in the contract between the owner and the carrier.9 Another exception allowed under third party contracts is cheques and promissory notes.

  1. International sale of goods contracts where the buyer and seller are domiciled in different ...

    the bill of lading has been issued - (Heskell v Continental Express)6. The contract of carriage is usually based on the carrier's standard terms and the bill of lading is not regarded as the contract of carriage itself but evidence of such contract - (Sewell v Burdick)7.

  2. Do companies have complete freedom to act? Analyse the doctrine of ultra vires and ...

    would prevent the surge in company registrations, but would afford members and creditors come protection from the detrimental effects that their would inevitably suffer if the company's risk venture was to be exposes and unsuccessful.17 This decision demonstrated to company directors that their freedom to contract was being curtailed and

  1. The Law of International Trade

    Its was held that the vessel was not in a fit state to carry the particular cargo contemplated by the contract, hence the carrier had not complied with his obligation to provide a vessel that was seaworthy. When does the common law obligation apply?

  2. Contract Assignment.

    the clause is part of the contract, (ii) Is the clause appropriately worded to cover what has occurred and (iii) is the clause affected by the Unfair Contract Terms Act 1977 or the Unfair terms in Consumer Contracts regulations 1999, In this question I am going to concentrate on the matters of incorporation and legislation.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work