Bills of Exchange

Nature of Bill of Exchange

The key characteristic of a bill of exchange is that it is an unconditional obligation to pay.  Payment cannot be refused because of some alleged failure to perform the transaction for which the Bill of Exchange is payment. A bill of exchange may be payable immediately or on or by a certain date.  This time limit is effectively a period of credit.  The person entitled to payment is the person who physically holds the bill.

The bill may be transferred by negotiation, by way of endorsement on it. The drawer and endorsers may be made liable to the holder  if the drawee dishonours the bill. They must receive notice of dishonour. There is a summary judgement procedure under the Rules of Court for enforcing payment under bill of exchange.

In international trade, the exporter (the drawer) draws a bill of exchange on the importer (called the drawee). The payer may be the exporter itself or a third party.  Once the bill of exchange is accepted by the drawee (the importer) the drawee is liable on the bill of exchange as if he had written a cheque.

The bill of exchange may be for immediate payment but more commonly allows for a period of credit; where it is payable at a specified future date (e.g. 90 days).  Various clauses must be or may be inserted providing for the place, date and currency of payment, the payment of interest and dealing with liability for bank charges.

Sight and Time Bills

The use of a bill of exchange may afford a credit period unless it provides for payment at sight.  The date for payment is inserted in the bill. There may be a sight bill or a time bill. A sight bill is defined as a bill expressed to be payable on demand, at sight or on presentation or in which no time for payment is expressed.

In the case of a sight bill, payment must be made  and remitted immediately once the title documents to the goods are produced and delivered. Typically, the seller remits the documents to the buyer by airmail in advance of the arrival of the shipment.

A time bill is payable at a future date, which is fixed or determinable. It is commonly paid, in the latter case, so many days after sight, e.g. 30 days after sight. The bill must be payable on a   date which is certain, in order to qualify as a bill of exchange.


Bills typically provide for payment, for example, 90 days after sight. They may provide for the payment of charges including exchange charges, and stamp duties are as part of the payment obligation.

Trade bills may provide for the payment of interest. The clause may provide for the payment of interest on the due date to the date of payment. In the absence of a clause providing specifically for interest, interest is payable only from the date of maturity. The default position is that incidental charges are born by the drawer.

The rate must be specified as such in the bill or in an ascertainable manner. Clauses which provide for the payment of interest are expressly permitted under the Bill of Exchange Act and do not obviate the requirement that the sum payable on the bill must be a sum certain in money.

Interest on a bill may be floating at a rate defined or referred to in it. It may refer to a measure of interest in the relevant currency. This is commonly set with reference to the bank’s selling rate on the relevant date or at the rate for collection at the end of the stated period after sight. Some of the clauses are customary in trade with particular countries.


The bill will express the currency of payment. There may be provision for exchange into another currency at a point in time. Clauses which provide for a particular exchange rate are expressly permitted under the Bill of Exchange Act and do not obviate the requirement that the sum payable on the bill must be a sum certain in money.

If there is no exchange clause in the bill and the exchange rate is not otherwise ascertainable in the trade, it is calculated in accordance with the rate for sight drafts at the place of payment of the bill (under Act). Judgment may be procured in the foreign currency of the bill and be converted into domestic currency at the date of enforcement.

International Rules

The laws on bills of exchange developed over centuries and are in broadly common terms internationally.  There are a number of international Conventions which provide for uniform practice in relation to bills of exchange.

There are a globally recognised rules sponsored by the International Chamber of Commerce for collections under Bills of Exchange.  They are discusses in detail in another article.

The UN Convention on International Bills of Exchange and International Promissory Notes seeks to create a form of instrument for use by persons in international trade, in place of existing instruments. It seeks to reconcile the common law practice and the Geneva system adopted by civil law jurisdictions. It applies only if the bill is designated as an international bill of exchange (UNCITRAL Convention) or at international promissory note (UNCITRAL Convention) at its heading. Ireland has not ratified the Convention.

Foreign Bills

The place of the payment is specified by the drawer or the acceptor on acceptance. It is usually paid at a bank’s office. The stipulation of a place of payment does not preclude taking legal action to enforce the bill elsewhere. unless it is provided that payment is to be made exclusively at that place only.

A foreign bill is one drawn on a person who is not a resident of the State or drawn by a person resident abroad and payable abroad. Other bills are inland bills.  The significance of a foreign bill is that it must be protested formally upon dishonour by non-acceptance or nonpayment. Protest is not necessary for inland bills. Other states and jurisdictions may require protest of inland bills.

Set of Bills

The Bill of Exchange Act provides that where bills are drawn in a set with each part of the set pre-numbered and containing a reference, they are drawn in a set for the purpose of the Act.

Parts of the set may be endorsed to different persons with a single acceptance by the drawee.  Where the holder of a set indorses two or more parts to different persons, he is liable on every such part, and every endorser subsequent to him is liable on the part he has himself endorsed as if those parts were separate bills.

Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is as between such holders deemed the true owner of the bill; but this does not affect the rights of a person who in due course accepts or pays the part first presented to him.

The acceptance may be written on any part, and it must be written on one part only if the drawee accepts more than one part, and such accepted parts get into the hands of different holders in due course, he is liable on every such part as if it were a separate bill.

When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and that part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder.

Subject to the preceding rules, where any one part of a bill drawn in a set is discharged by payment, or otherwise, the whole bill is discharged.

Collection on Bill

Commonly the buyer does not remit the purchase price on open account, but instead allows the exporter to draw a bill of exchange on it.  A bill of exchange, once accepted by the buyer or its bank, is an unconditional liability equivalent to a cheque. It is not possible, lawfully to revoke a bill of exchange on the basis that the person liable, the drawee is dissatisfied with the underlying transaction.

In some cases, the seller / exporter may entrust collection on the bill of exchange to a representative or where applicable a subsidiary company. Much more commonly and to reconcile the interests of both parties, a bank (or usually two banks) are involved in the collection arrangement.

The seller / exporter asks its bank to arrange for collection of the price by acceptance or payment of / on a bill of exchange. If it is represented in the buyer’s place of business, the exporter’s bank (the remitting bank) asks its branch or correspondent bank (the collecting bank) to collect on the bill of exchange in accordance with instructions given in a documentary bill lodgement form, which is designed to cover various eventualities.

Payment against Documents

Documents to the sold goods sent for collection are accompanied by instructions, usually incorporating the uniform rules. The exporter must instruct the remitting bank and the latter must instruct the collecting bank as to whether the documents are to be delivered to the buyer on acceptance (d/a) or on actual payment (d/p) terms.

They require complete and precise instructions.  They should state the amount of currency to be collected, the accompanying documents, the terms of delivery of the documents together with any other matters required to be done.

The bill is drawn by the seller on the buyer. The primary liability on the bill rests with the drawee i.e. the person accepting it; in this case the buyer. There is an exchange of the documents of title representing the goods for the price or an accepted bill in accordance with the instructions.

The collecting bank  must establish that the documents as received appear to be in order and are as listed in the collection instruction.  Directions should be given in relation to the event that the bill is dishonoured.  It should be given instructions in relation to protesting.

Issued with the Bill of Lading

A documentary bill has the bill of lading attached. The objective is that the buyer should not obtain the bill of lading carrying title to the goods until he has accepted the bill of exchange. The buyer does not receive the bill of lading unless he has either paid or accepted the bill of exchange according to the contractual arrangement between the parties.

If the buyer fails to honour the bill of exchange, he must return the bill of lading. The property in the goods does not pass to him until this is done. Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange. If he wrongfully retains the bill of lading the property in the goods does not pass to him.

Negotiation of Time Bills

When the drawee (the importer / buyer) accepts the bill of exchange, he becomes primarily liable on it. Acceptance is usually done by signing the bill.

A Bill of exchange is commonly payable immediately (on sight) or so many days after sight (commonly after 60 or 90 days).  Interest may be payable at a fixed or variable rate after the due date.  Particular clauses are customary in certain trades.

The bill may be negotiated or pledged by way of security in order to raise funds prior to its due date. The sum raised is a usually at a discount to the face value, representing an implicit charge of interest.

A bill of exchange can be negotiated (transferred) even though there may be a flaw in the title of the person who transfers it.  The person who takes a bill of exchange in good faith which appears to be in order on its face, takes good title to it and can take legal action against the person making it. He also has certain secondary rights against the person who negotiated it to him, if the original drawee does not honour it.

Negotiation Generally

A bill of exchange can be negotiated.  Because it is negotiable, it can be endorsed by the exporter to his bank which can sue the buyer directly to enforce it, if this should prove necessary. This may enable the buyer to turn it into cash, either by transferring it or by pledging it as security.

The exporter may ask its bank to make an advance on the security of a bill of exchange or to discount a bill which it is entitled to draw on the drawee, the issuing or advising bank or an accepted letter of credit

Where the buyer agrees to pay the purchase price under a letter of credit, the exporter may obtain finance before delivery of the transport documents to the advising bank by negotiating the draft drawn on the buyer or its bank, to another bank

The bill is discounted where the exporter pays the bank’s interest and they are said to be purchased when the drawee pays the bank’s interest and the exporter receives the nominal value.

Security on Bill

A bank / lender may make an advance on the security of a bill which it holds for collection. It may discount or purchase a bill drawn on the issuing bank. A bill which has been accepted by the bank is referred to historically as a “fine trade” bill.

The bank / lender may make advances against specific bills, or there may be a general overdraft on the security of a number of bills.

Where the purchase price is paid under a letter of credit, the draft drawn on the buyer may be negotiated to a bank. The bill is discounted where the drawer pays the bank’s interest. They are purchased when the drawee pays the bank’s interest. In the case of both purchase and negotiation, the bank acquires title by endorsement and delivery of the bill and thereby has a direct right of action against the drawee/buyer.

Avalisation and Other Security

A Bill of exchange can be guaranteed or so called “avalised” by being signed. In international trade, bills are usually avalised by banks. The bank which avalises a bill has the same liabilities as an endorser, to the holder of the bill in due course. It is effectively a guarantor, although it is not an endorser as such. A time bill may be avalised.

Avalising is usually done by a bank although this is not necessarily so. The value of avalisation is that an entity of good financial strength undertakes to meet the obligation. The procurement of an aval of sufficient creditworthiness and strength may be a requirement for the release of the documents of title to the goods to the buyer.

The avalisation by a bank of good standing is of great value.  It provides a form of security which a finance house requires when providing non-recourse finance to the exporter.  The charges of the avalising bank are likely to be significant as they amount to a guarantee. Alternatively, the bank may hold cash as counter security for its obligations.

References and Sources

Consumer Law  Long      2004

Commercial Law White  2nd ed    2012

Commercial & Economic Law in Ireland  White    2011

Commercial Law Forde  3rd ed    2005

Irish Commercial Precedents (Looseleaf)                               2004

Modern law of personal property in England and Ireland Bell 1989

Commercial & Consumer Law: Annotated Statutes O’Reilly           2000

UK Texts

Schmitthoff: The Law and Practice of International Trade 13th ed Carole Murray, David Holloway, Daren Timson-Hunt, Schmitthoffs 2018

Damages Under the Convention of Contracts for the International Sale of Goods 3rd ed Bruno Zeller 2018

International Economic Law 4th ed Asif Qureshi, Andreas Ziegler 2018

Law of International Trade: Cross Border Commercial Transactions 6th ed Jason C.T. Chuah 2018

World Trade Law: Text, Materials and Commentary 3rd ed 2018

The International Sale of Goods 4th ed Michael Bridge 2017

International Trade Law 6th ed Indira Carr, Peter Stone 2017

International Institute for the Unification of Private Law 2nd ed (UNIDROIT) 2017

Understanding the CISG Understanding the CISG 5th (Worldwide) ed 2017

The Law and Policy of the World Trade Organization: Text, Cases and Materials  2017

International Trade Law and Regulation:: Michael Blakeney, Aline Doussin, John Clarke, Mark Clough, 2017

International Sale of Goods: A Private International Law Comparative Edited by: Nicolas Nord, Gustavo Cerqueira 2017

International Sales Law Edited by: Franco Ferrari, Clayton P. Gillette 2017

The CISG Advisory Council Opinions Edited by: Ingeborg Schwenzer 2017

World Competition: Law and Economics Review – Editor in Chief: Jose Rivas 2017

Making Money with Incoterms 2010:  Strategic Use of Incoterms Rules in Purchases and Sales Arthur O’Meara 2017

World Trade Organization: Law, Practice and Policy World Trade Organization: Law, Practice and Policy 3rd ed Mitsuo Matsushita, Thomas J. Schoenbaum, Petros C. Mavroidis, Michael Hahn 2017