Banking Law and Practice

CHAPTER 3

Bills of Exchange and Promissory Notes

Learning objectives

After studying this chapter, you should be able to:

1 Describe the definitions, parties, and characteristics relating to bills of exchange and promissory notes

2 Identify the law applicable to these two types of negotiable instruments, including the rules codified in the Bills of Exchange Ordinance

3 Discuss the legal issues that a banker must be aware of when dealing with bills of exchange and promissory notes

Introduction

Negotiable instruments have the following key characteristics: they can be transferred from person to person, the person to whom they are negotiated obtains good title to them even though the transferor may have a defective title or no title at all, and the person to whom they are negotiated can sue on them in his own name.

Because banks deal with negotiable instruments every day, bankers need to understand the legal issues surrounding them. There are many types of negotiable instruments (and quasi-negotiable instruments), but we focus on two main groups in this book. These are bills of exchange and promissory notes.

In this chapter, we provide a general discussion of these two types of negotiable instruments and their functions, the role of the parties to these instruments, and the rights of the holder. The rules have evolved as part of common law and have been consolidated and codified in the Bills of Exchange Ordinance and other legislation.

Negotiable Instruments

Before we discuss bills ...