Current Legal Issues Affecting Central Banks, Volume V
Chapter

Appendix II Payments Materials

Author(s):
Robert Effros
Published Date:
May 1998
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1 Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes

Article I1

The High Contracting Parties undertake to introduce in their respective territories, either in one of the original texts or in their own languages, the Uniform Law forming Annex I of the present Convention.

This undertaking shall, if necessary, be subject to such reservations as each High Contracting Party shall notify at the time of its ratification or accession. These reservations shall be chosen from among those mentioned in Annex II of the present Convention.

The reservation referred to in Articles 8, 12 and 18 of the said Annex II may, however, be made after ratification or accession, provided that they are notified to the Secretary-General of the League of Nations, who shall forthwith communicate the text thereof to the Members of the League of Nations and to the non-Member States on whose behalf the present Convention has been ratified or acceded to. Such reservations shall not take effect until the ninetieth day following the receipt by the Secretary-General of the above-mentioned notification.

Each of the High Contracting Parties may, in urgent cases, make use of the reservations contained in Articles 7 and 22 of the said Annex II, even after ratification or accession. In such cases they must immediately notify direct all other High Contracting Parties and the Secretary-General of the League of Nations. The notification of these reservations shall take effect two days following its receipt by the High Contracting Parties.

Article II

In the territories of each of the High Contracting Parties the Uniform Law shall not apply to bills of exchange and promissory notes already issued at the time of the coming into force of the present Convention.

Article III

The present Convention, the French and English texts of which shall be equally authentic, shall bear this day’s date.

It may be signed thereafter until September 6th, 1930, on behalf of any Member of the League of Nations or non-Member State.

Article IV

The present Convention shall be ratified.

The instruments of ratification shall be deposited before September 1st, 1932, with the Secretary-General of the League of Nations, who shall forthwith notify receipt thereof to all the Members of the League of Nations and to the non-Member States Parties to the present Convention.

Article V

As from September 6th, 1930, any Member of the League of Nations and any non-Member State may accede thereto.

Such accession shall be effected by a notification to the Secretary-General of the League of Nations, such notification to be deposited in the archives of the Secretariat.

The Secretary-General shall notify such deposit forthwith to all High Contracting Parties that have signed or acceded to the present Convention.

Article VI

The present Convention shall not come into force until it has been ratified or acceded to on behalf of seven Members of the League of Nations or non-Member States, including therein three of the Members of the League permanently represented on the Council.

The date of entry into force shall be the ninetieth day following the receipt by the Secretary-General of the League of Nations of the seventh ratification or accession in accordance with the first paragraph of the present Article.

The Secretary-General of the League of Nations, when making the notifications provided for in Articles IV and V, shall state in particular that the ratifications or accessions referred to in the first paragraph of the present Article have been received.

Article VII

Every ratification or accession effected after the entry into force of the Convention in accordance with Article VI shall take effect on the ninetieth day following the date of receipt thereof by the Secretary-General of the League of Nations.

Article VIII

Except in urgent cases the present Convention may not be denounced before the expiry of two years from the date on which it has entered into force in respect of the Member of the League or non-Member State denouncing it; such denunciation shall take effect as from the ninetieth day following the receipt by the Secretary-General of the notification addressed to him.

Every denunciation shall be immediately communicated by the Secretary-General of the League of Nations to all the other High Contracting Parties.

In urgent cases a High Contracting Party which denounces the Convention shall immediately notify direct all other High Contracting Parties, and the denunciation shall take effect two days after the receipt of such notification by the said High Contracting Parties. A High Contracting Party denouncing the Convention in these circumstances shall also inform the Secretary-General of the League of Nations of its decision.

Each denunciation shall take effect only as regards the High Contracting Party on whose behalf it has been made.

Article IX

Every Member of the League of Nations and every non-Member State in respect of which the present Convention is in force, may forward to the Secretary-General of the League of Nations, after the expiry of the fourth year following the entry into force of the Convention, a request for the revision of some or all of the provisions of this Convention.

If such request, after being communicated to the other Members or non-Member States between which the Convention is at that time in force, is supported within one year by at least six of them, the Council of the League of Nations shall decide whether a Conference shall be convened for the purpose.

Article X

The High Contracting Parties may declare at the time of signature, ratification or accession that it is not their intention in accepting the present Convention to assume any liability in respect of all or any of their colonies, protectorates or territories under suzerainty or mandate, in which case the present Convention shall not be applicable to the territories mentioned in such declaration.

The High Contracting Parties may at any time subsequently inform the Secretary-General of the League of Nations that they intend to apply the present Convention to all or any of their territories referred to in the declaration provided for in the preceding paragraph. In this case, the Convention shall apply to the territories referred to in the notification ninety days after its receipt by the Secretary-General of the League of Nations.

They further reserve the right to denounce it, in accordance with the conditions of Article VIII, on behalf of all or any of their colonies, protectorates or territories under suzerainty or mandate.

Article XI

The present Convention shall be registered by the Secretary-General of the League of Nations as soon as it comes into force. It shall then be published as soon as possible in the League of Nations Treaty Series.

* * *

In faith whereof the above-mentioned Plenipotentiaries have signed the present Convention.

DONE at Geneva, the seventh day of June, one thousand nine hundred and thirty, in a single copy, which shall be deposited in the archives of the Secretariat of the League of Nations, and of which authenticated copies shall be delivered to all Members of the League of Nations and non-Member States represented at the Conference.

ANNEX I UNIFORM LAW ON BILLS OF EXCHANGE AND PROMISSORY NOTES

TITLE I BILLS OF EXCHANGE

CHAPTER I. ISSUE AND FORM OF A BILL OF EXCHANGE

Article 1

A bill of exchange contains:

1. The term “bill of exchange” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument;

2. An unconditional order to pay a determinate sum of money;

3. The name of the person who is to pay (drawee);

4. A statement of the time of payment;

5. A statement of the place where payment is to be made;

6. The name of the person to whom or to whose order payment is to be made;

7. A statement of the date and of the place where the bill is issued;

8. The signature of the person who issues the bill (drawer).

Article 2

An instrument in which any of the requirements mentioned in the preceding article is wanting is invalid as a bill of exchange, except in the case specified in the following paragraphs:

A bill of exchange in which the time of payment is not specified is deemed to be payable at sight.

In default of special mention, the place specified beside the name of the drawee is deemed to be the place of payment, and at the same time the place of the domicile of the drawee.

A bill of exchange which does not mention the place of its issue is deemed to have been drawn in the place mentioned beside the name of the drawer.

Article 3

A bill of exchange may be drawn payable to drawer’s order.

It may be drawn on the drawer himself.

It may be drawn for account of a third person.

Article 4

A bill of exchange may be payable at the domicile of a third person either in the locality where the drawee has his domicile or in another locality.

Article 5

When a bill of exchange is payable at sight, or at a fixed period after sight, the drawer may stipulate that the sum payable shall bear interest. In the case of any other bill of exchange, this stipulation is deemed not to be written (non écrite).

The rate of interest must be specified in the bill; in default of such specification, the stipulation shall be deemed not to be written (non écrite).

Interest runs from the date of the bill of exchange, unless some other date is specified.

Article 6

When the sum payable by a bill of exchange is expressed in words and also in figures, and there is a discrepancy between the two, the sum denoted by the words is the amount payable.

Where the sum payable by a bill of exchange is expressed more than once in words or more than once in figures, and there is a discrepancy, the smaller sum is the sum payable.

Article 7

If a bill of exchange bears signatures of persons incapable of binding themselves by a bill of exchange, or forged signatures, or signatures of fictitious persons, or signatures which for any other reason cannot bind the persons who signed the bill of exchange or on whose behalf it was signed, the obligations of the other persons who signed it are none the less valid.

Article 8

Whosoever puts his signature on a bill of exchange as representing a person for whom he had no power to act is bound himself as a party to the bill and, if he pays, has the same rights as the person for whom he purported to act. The same rule applies to a representative who has exceeded his powers.

Article 9

The drawer guarantees both acceptance and payment.

He may release himself from guaranteeing acceptance; every stipulation by which he releases himself from the guarantee of payment is deemed not to be written (non écrite).

Article 10

If a bill of exchange, which was incomplete when issued, has been completed otherwise than in accordance with the agreements entered into, the non-observance of such agreements may not be set up against the holder unless he has acquired the bill of exchange in bad faith or, in acquiring it, has been guilty of gross negligence.

CHAPTER II. ENDORSEMENT

Article 11

Every bill of exchange, even if not expressly drawn to order, may be transferred by means of endorsement.

When the drawer has inserted in a bill of exchange the words “not to order” or an equivalent expression, the instrument can only be transferred according to the form, and with the effects of an ordinary assignment.

The bill may be endorsed even in favour of the drawee, whether he has accepted or not, or of the drawer, or of any other party to the bill. These persons may re-endorse the bill.

Article 12

An endorsement must be unconditional. Any condition to which it is made subject is deemed not to be written (non écrite).

A partial endorsement is null and void.

An endorsement “to bearer” is equivalent to an endorsement in blank.

Article 13

An endorsement must be written on the bill of exchange or on a slip affixed thereto (allonge). It must be signed by the endorser.

The endorsement may leave the beneficiary unspecified or may consist simply of the signature of the endorser (endorsement in blank). In the latter case, the endorsement, to be valid, must be written on the back of the bill of exchange or on the slip attached thereto (allonge).

Article 14

An endorsement transfers all the rights arising out of a bill of exchange.

If the endorsement is in blank, the holder may:

  • (1) Fill up the blank either with his own name or with the name of some other person;

  • (2) Re-endorse the bill in blank, or to some other person;

  • (3) Transfer the bill to a third person without filling up the blank, and without endorsing it.

Article 15

In the absence of any contrary stipulation, the endorser guarantees acceptance and payment.

He may prohibit any further endorsement; in this case, he gives no guarantee to the persons to whom the bill is subsequently endorsed.

Article 16

The possessor of a bill of exchange is deemed to be the lawful holder if he establishes his title to the bill through an uninterrupted series of endorsements, even if the last endorsement is in blank. In this connection, cancelled endorsements are deemed not to be written (non écrits). When an endorsement in blank is followed by another endorsement, the person who signed this last endorsement is deemed to have acquired the bill by the endorsement in blank.

Where a person has been dispossessed of a bill of exchange, in any manner whatsoever, the holder who establishes his right thereto in the manner mentioned in the preceding paragraph is not bound to give up the bill unless he has acquired it in bad faith, or unless in acquiring it he has been guilty of gross negligence.

Article 17

Persons sued on a bill of exchange cannot set up against the holder defences founded on their personal relations with the drawer or with previous holders, unless the holder, in acquiring the bill, has knowingly acted to the detriment of the debtor.

Article 18

When an endorsement contains the statements “value in collection” (“valeur en recouvrement”), “for collection” (“pour encaissement “by procuration” (“par procuration”) or any other phrase implying a simple mandate, the holder may exercise all rights arising out of the bill of exchange, but he can only endorse it in his capacity as agent.

In this case, the parties liable can only set up against the holder defences which could be set up against the endorser.

The mandate contained in an endorsement by procuration does not terminate by reason of the death of the party giving the mandate or by reason of his becoming legally incapable.

Article 19

When an endorsement contains the statements “value in security” (“valeur en garantie”), “value in pledge” (“valeur en gage”), or any other statement implying a pledge, the holder may exercise all the rights arising out of the bill of exchange, but an endorsement by him has the effects only of an endorsement by an agent.

The parties liable cannot set up against the holder defences founded on their personal relations with the endorser, unless the holder, in receiving the bill, has knowingly acted to the detriment of the debtor.

Article 20

An endorsement after maturity has the same effects as an endorsement before maturity. Nevertheless, an endorsement after protest for non-payment, or after the expiration of the limit of time fixed for drawing up the protest, operates only as an ordinary assignment.

Failing proof to the contrary, an endorsement without date is deemed to have been placed on the bill before the expiration of the limit of time fixed for drawing up the protest.

CHAPTER III. ACCEPTANCE

Article 21

Until maturity, a bill of exchange may be presented to the drawee for acceptance at his domicile, either by the holder or by a person who is merely in possession of the bill.

Article 22

In any bill of exchange, the drawer may stipulate that it shall be presented for acceptance with or without fixing a limit of time for presentment.

Except in the case of a bill payable at the address of a third party or in a locality other than that of the domicile of the drawee, or, except in the case of a bill drawn payable at a fixed period after sight, the drawer may prohibit presentment for acceptance.

He may also stipulate that presentment for acceptance shall not take place before a named date.

Unless the drawer has prohibited acceptance, every endorser may stipulate that the bill shall be presented for acceptance, with or without fixing a limit of time for presentment.

Article 23

Bills of exchange payable at a fixed period after sight must be presented for acceptance within one year of their date.

The drawer may abridge or extend this period.

These periods may be abridged by the endorsers.

Article 24

The drawee may demand that a bill shall be presented to him a second time on the day after the first presentment. Parties interested are not allowed to set up that this demand has not been complied with unless this request is mentioned in the protest.

The holder is not obliged to surrender to the drawee a bill presented for acceptance.

Article 25

An acceptance is written on the bill of exchange. It is expressed by the word “accepted” or any other equivalent term. It is signed by the drawee. The simple signature of the drawee on the face of the bill constitutes an acceptance.

When the bill is payable at a certain time after sight, or when it must be presented for acceptance within a certain limit of time in accordance with a special stipulation, the acceptance must be dated as of the day when the acceptance is given, unless the holder requires that it shall be dated as of the day of presentment. If it is undated, the holder, in order to preserve his right of recourse against the endorsers and the drawer, must authenticate the omission by a protest drawn up within the proper time.

Article 26

An acceptance is unconditional, but the drawee may restrict it to part of the sum payable.

Every other modification introduced by an acceptance into the tenor of the bill of exchange operates as a refusal to accept. Nevertheless, the acceptor is bound according to the terms of his acceptance.

Article 27

When the drawer of a bill has indicated a place of payment other than the domicile of the drawee without specifying a third party at whose address payment must be made, the drawee may name such third party at the time of acceptance. In default of this indication, the acceptor is deemed to have undertaken to pay the bill himself at the place of payment.

If a bill is payable at the domicile of the drawee, the latter may in his acceptance indicate an address in the same place where payment is to be made.

Article 28

By accepting, the drawee undertakes to pay the bill of exchange at its maturity.

In default of payment, the holder, even if he is the drawer, has a direct action on the bill of exchange against the acceptor for all that can be demanded in accordance with Articles 48 and 49.

Article 29

Where the drawee who has put his acceptance on a bill has cancelled it before restoring the bill, acceptance is deemed to be refused. Failing proof to the contrary, the cancellation is deemed to have taken place before the bill was restored.

Nevertheless, if the drawee has notified his acceptance in writing to the holder or to any party who has signed the bill, he is liable to such parties according to the terms of his acceptance.

CHAPTER IV. “AVALS”

Article 30

Payment of a bill of exchange may be guaranteed by an “aval” as to the whole or part of its amount.

This guarantee may be given by a third person or even by a person who has signed as a party to the bill.

Article 31

The “aval” is given either on the bill itself or on an “allonge”.

It is expressed by the words “good as aval” (“bon pour aval”) or by any other equivalent formula. It is signed by the giver of the “aval”.

It is deemed to be constituted by the mere signature of the giver of the “aval” placed on the face of the bill, except in the case of the signature of the drawee or of the drawer.

An “aval” must specify for whose account it is given. In default of this, it is deemed to be given for the drawer.

Article 32

The giver of an “aval” is bound in the same manner as the person for whom he has become guarantor.

His undertaking is valid even when the liability which he has guaranteed is inoperative for any reason other than defect of form.

He has, when he pays a bill of exchange, the rights arising out of the bill of exchange against the person guaranteed and against those who are liable to the latter on the bill of exchange.

CHAPTER V. MATURITY

Article 33

A bill of exchange may be drawn payable:

  • At sight;

  • At a fixed period after sight;

  • At a fixed period after date;

  • At a fixed date.

Bills of exchange at other maturities or payable by instalments are null and void.

Article 34

A bill of exchange at sight is payable on presentment. It must be presented for payment within a year of its date. The drawer may abridge or extend this period. These periods may be abridged by the endorsers.

The drawer may prescribe that a bill of exchange payable at sight must not be presented for payment before a named date. In this case, the period for presentment begins from the said date.

Article 35

The maturity of a bill of exchange payable at a fixed period after sight is determined either by the date of the acceptance or by the date of the protest.

In the absence of the protest, an undated acceptance is deemed, so far as regards the acceptor, to have been given on the last day of the limit of time for presentment for acceptance.

Article 36

Where a bill of exchange is drawn at one or more months after date or after sight, the bill matures on the corresponding date of the month when payment must be made. If there be no corresponding date, the bill matures on the last day of this month.

When a bill of exchange is drawn at one or more months and a-half after date or sight, entire months must first be calculated.

If the maturity is fixed at the commencement, in the middle (mid-January or mid-February, etc.) or at the end of the month, the first, fifteenth or last day of the month is to be understood.

The expressions “eight days” or “fifteen days” indicate not one or two weeks, but a period of eight or fifteen actual days.

The expression “half-month” means a period of fifteen days.

Article 37

When a bill of exchange is payable on a fixed day in a place where the calendar is different from the calendar in the place of issue, the day of maturity is deemed to be fixed according to the calendar of the place of payment.

When a bill of exchange drawn between two places having different calendars is payable at a fixed period after date, the day of issue is referred to the corresponding day of the calendar in the place of payment, and the maturity is fixed accordingly.

The time for presenting bills of exchange is calculated in accordance with the rules of the preceding paragraph.

These rules do not apply if a stipulation in the bill or even the simple terms of the instrument indicate an intention to adopt some different rule.

CHAPTER VI. PAYMENT

Article 38

The holder of a bill of exchange payable on a fixed day or at a fixed period after date or after sight must present the bill for payment either on the day on which it is payable or on one of the two business days which follow.

The presentment of a bill of exchange at a clearing-house is equivalent to a presentment for payment.

Article 39

The drawee who pays a bill of exchange may require that it shall be given up to him receipted by the holder.

The holder may not refuse partial payment.

In case of partial payment the drawee may require that mention of this payment shall be made on the bill, and that a receipt therefor shall be given to him.

Article 40

The holder of a bill of exchange cannot be compelled to receive payment thereof before maturity.

The drawee who pays before maturity does so at his own risk and peril.

He who pays at maturity is validly discharged, unless he has been guilty of fraud or gross negligence. He is bound to verify the regularity of the series of endorsements, but not the signature of the endorsers.

Article 41

When a bill of exchange is drawn payable in a currency which is not that of the place of payment, the sum payable may be paid in the currency of the country, according to its value on the date of maturity. If the debtor is in default, the holder may at his option demand that the amount of the bill be paid in the currency of the country according to the rate on the day of maturity or the day of payment.

The usages of the place of payment determine the value of foreign currency. Nevertheless, the drawer may stipulate that the sum payable shall be calculated according to a rate expressed in the bill.

The foregoing rules shall not apply to the case in which the drawer has stipulated that payment must be made in a certain specified currency (stipulation for effective payment in foreign currency).

If the amount of the bill of exchange is specified in a currency having the same denomination, but a different value in the country of issue and the country of payment, reference is deemed to be made to the currency of the place of payment.

Article 42

When a bill of exchange is not presented for payment within the limit of time fixed by Article 38, every debtor is authorised to deposit the amount with the competent authority at the charge, risk and peril of the holder.

CHAPTER VII. RECOURSE FOR NON-ACCEPTANCE OR NON-PAYMENT

Article 43

The holder may exercise his right of recourse against the endorsers, the drawer and the other parties liable:

At maturity:

  • If payment has not been made;

Even before maturity:

  • (1) If there has been total or partial refusal to accept;

  • (2) In the event of the bankruptcy (faillite) of the drawee, whether he has accepted or not, or in the event of a stoppage of payment on his part, even when not declared by a judgment, or where execution has been levied against his goods without result;

  • (3) In the event of the bankruptcy (faillite) of the drawer of a non-acceptable bill.

Article 44

Default of acceptance or of payment must be evidenced by an authentic act (protest for non-acceptance or non-payment).

Protest for non-acceptance must be made with the limit of time fixed for presentment for acceptance. If, in the case contemplated by Article 24, paragraph 1, the first presentment takes place on the last day of that time, the protest may nevertheless be drawn up on the next day.

Protest for non-payment of a bill of exchange payable on a fixed day or at a fixed period after date or sight must be made on one of the two business days following the day on which the bill is payable. In the case of a bill payable at sight, the protest must be drawn up under the conditions specified in the foregoing paragraph for the drawing up of a protest for non-acceptance.

Protest for non-acceptance dispenses with presentment for payment and protest for non-payment.

If there is a stoppage of payment on the part of the drawee, whether he has accepted or not, or if execution has been levied against his goods without result, the holder cannot exercise his right of recourse until after presentment of the bill to the drawee for payment and after the protest has been drawn up.

If the drawee, whether he has accepted or not, is declared bankrupt (faillite déclarée), or the event of the declared bankruptcy of the drawer of a non-acceptable bill, the production of the judgment declaring the bankruptcy suffices to enable the holder to exercise his right of recourse.

Article 45

The holder must give notice of non-acceptance or non-payment to his endorser and to the drawer within the four business days which follow the day for protest or, in case of a stipulation “retour sans frais”, the day for presentment. Every endorser must, within the two business days following the day on which he receives notice, notify his endorser of the notice he has received, mentioning the names and addresses of those who have given the previous notices, and so on through the series until the drawer is reached. The periods mentioned above run from the receipt of the preceding notice.

When, in conformity with the preceding paragraph, notice is given to a person who has signed a bill of exchange, the same notice must be given within the same limit of time to his avaliseur.

Where an endorser either has not specified his address or has specified it in an illegible manner, it is sufficient that notice should be given to the preceding endorser.

A person who must give notice may give it in any form whatever, even by simply returning the bill of exchange.

He must prove that he has given notice within the time allowed. This time-limit shall be regarded as having been observed if a letter giving the notice has been posted within the prescribed time.

A person who does not give notice within the limit of time mentioned above does not forfeit his rights. He is responsible for the injury, if any, caused by his negligence, but the damages shall not exceed the amount of the bill of exchange.

Article 46

The drawer, an endorser, or a person guaranteeing payment by aval(avaliseur) may, by the stipulation “retour sans frais”, “sans protêt”, or any other equivalent expression written on the instrument and signed, release the holder from having a protest of non-acceptance or non-payment drawn up in order to exercise his right of recourse.

This stipulation does not release the holder from presenting the bill within the prescribed time, or from the notices he has to give. The burden of proving the non-observance of the limits of time lies on the person who seeks to set it up against the holder.

If the stipulation is written by the drawer, it is operative in respect of all persons who have signed the bill; if it is written by an endorser or an avaliseur, it is operative only in respect of such endorser or avaliseur. If, in spite of the stipulation written by the drawer, the holder has the protest drawn up, he must bear the expenses thereof. When the stipulation emanates from an endorser or avaliseur, the cost of the protest, if one is drawn up, may be recovered from all the persons who have signed the bill.

Article 47

All drawers, acceptors, endorsers or guarantors by aval of a bill of exchange are jointly and severally liable to the holder.

The holder has the right of proceeding against all these persons individually or collectively without being required to observe the order in which they have become bound.

The same right is possessed by any person signing the bill who has taken it up and paid it.

Proceedings against one of the parties liable do not prevent proceedings against the others, even though they may be subsequent to the party first proceeded against.

Article 48

The holder may recover from the person against whom he exercises his right of recourse:

(1) The amount of the unaccepted or unpaid bill of exchange with interest, if interest has been stipulated for;

(2) Interest at the rate of 6 per cent from the date of maturity;

(3) The expenses of protest and of the notices given as well as other expenses.

If the right of recourse is exercised before maturity, the amount of the bill shall be subject to a discount. This discount shall be calculated according to the official rate of discount (bank-rate) ruling on the date when recourse is exercised at the place of domicile of the holder.

Article 49

A party who takes up and pays a bill of exchange can recover from the parties liable to him:

(1) The entire sum which he has paid;

(2) Interest on the said sum calculated at the rate of 6 per cent, starting from the day when he made payment;

(3) Any expenses which he has incurred.

Article 50

Every party liable against whom a right of recourse is or may be exercised, can require against payment, that the bill shall be given up to him with the protest and a receipted account.

Every endorser who has taken up and paid a bill of exchange may cancel his own endorsement and those of subsequent endorsers.

Article 51

In the case of the exercise of the right of recourse after partial acceptance, the party who pays the sum in respect of which the bill has not been accepted can require that this payment shall be specified on the bill and that he shall be given a receipt therefor. The holder must also give him a certified copy of the bill, together with the protest, in order to enable subsequent recourse to be exercised.

Article 52

Every person having the right of recourse may, in the absence of agreement to the contrary, reimburse himself by means of a fresh bill (redraft) to be drawn at sight on one of the parties liable to him and payable at the domicile of that party.

The redraft includes, in addition to the sums mentioned in Articles 48 and 49, brokerage and the cost of stamping the redraft.

If the redraft is drawn by the holder, the sum payable is fixed according to the rate for a sight bill drawn at the place where the original bill was payable upon the party liable at the place of his domicile. If the redraft is drawn by an endorser, the sum payable is fixed according to the rate for a sight bill drawn at the place where the drawer of the redraft is domiciled upon the place of domicile of the party liable.

Article 53

After the expiration of the limits of time fixed:

For the presentment of a bill of exchange drawn at sight or at a fixed period after sight;

For drawing up the protest for non-acceptance or non-payment;

For presentment for payment in the case of a stipulation retour sans frais, the holder loses his rights of recourse against the endorsers, against the drawer and against the other parties liable, with the exception of the acceptor.

In default of presentment for acceptance within the limit of time stipulated by the drawer, the holder loses his right of recourse for nonpayment, as well as for non-acceptance, unless it appears from the terms of the stipulation that the drawer only meant to release himself from the guarantee of acceptance.

If the stipulation for a limit of time for presentment is contained in an endorsement, the endorser alone can avail himself of it.

Article 54

Should the presentment of the bill of exchange or the drawing up of the protest within the prescribed limits of time be prevented by an insurmountable obstacle (legal prohibition (prescription légale) by any State or other case of vis major), these limits of time shall be extended.

The holder is bound to give notice without delay of the case of vis major to his endorser and to specify this notice, which he must date and sign, on the bill or on an allonge; in other respects the provisions of Article 45 shall apply.

When vis major has terminated, the holder must without delay present the bill of exchange for acceptance or payment and, if need be, draw up the protest.

If vis major continues to operate beyond thirty days after maturity, recourse may be exercised, and neither presentment nor the drawing up of a protest shall be necessary.

In the case of bills of exchange drawn at sight or at a fixed period after sight, the time-limit of thirty days shall run from the date on which the holder, even before the expiration of the time for presentment, has given notice of vis major to his endorser. In the case of bills of exchange drawn at a certain time after sight, the above time-limit of thirty days shall be added to the period after sight specified in the bill of exchange.

Facts which are purely personal to the holder or to the person whom he has entrusted with the presentment of the bill or drawing up of the protest are not deemed to constitute cases of vis major.

CHAPTER VIII. INTERVENTION FOR HONOUR

1. GENERAL PROVISIONS

Article 55

The drawer, an endorser, or a person given an aval may specify a person who is to accept or pay in case of need.

A bill of exchange may, subject as hereinafter mentioned, be accepted or paid by a person who intervenes for the honour of any debtor against whom a right of recourse exists.

The person intervening may be a third party, even the drawee, or, save the acceptor, a party already liable on the bill of exchange.

The person intervening is bound to give, within two business days, notice of his intervention to the party for whose honour he has intervened. In default, he is responsible for the injury, if any, due to his negligence, but the damages shall not exceed the amount of the bill of exchange.

2. ACCEPTANCE BY INTERVENTION (FOR HONOUR)

Article 56

There may be acceptance by intervention in all cases where the holder has a right of recourse before maturity on a bill which is capable of acceptance.

When the bill of exchange indicates a person who is designated to accept or pay it in case of need at the place of payment, the holder may not exercise his rights of recourse before maturity against the person naming such referee in case of need and against subsequent signatories, unless he has presented the bill of exchange to the referee in case of need and until, if acceptance is refused by the latter, this refusal has been authenticated by a protest.

In other cases of intervention the holder may refuse an acceptance by intervention. Nevertheless, if he allows it, he loses his right of recourse before maturity against the person on whose behalf such acceptance was given and against subsequent signatories.

Article 57

Acceptance by intervention is specified on the bill of exchange. It is signed by the person intervening. It mentions the person for whose honour it has been given and, in default of such mention, the acceptance is deemed to have been given for the honour of the drawer.

Article 58

The acceptor by intervention is liable to the holder and to the endorsers, subsequent to the party for whose honour he intervened, in the same manner as such party.

Notwithstanding an acceptance by intervention, the party for whose honour it has been given and the parties liable to him may require the holder, in exchange for payment of the sum mentioned in Article 48, to deliver the bill, the protest, and a receipted account, if any.

3. PAYMENT BY INTERVENTION

Article 59

Payment by intervention may take place in all cases where, either at maturity or before maturity, the holder has a right of recourse on the bill.

Payment must include the whole amount payable by the party for whose honour it is made.

It must be made at the latest on the day following the last day allowed for drawing up the protest for non-payment.

Article 60

If a bill of exchange has been accepted by persons intervening who are domiciled in the place of payment, or if persons domiciled there have been named as referees in case of need, the holder must present the bill to all these persons and, if necessary, have a protest for non-payment drawn up at the latest on the day following the last day allowed for drawing up the protest.

In default of protest within this limit of time, the party who has named the referee in case of need, or for whose account the bill has been accepted, and the subsequent endorsers, are discharged.

Article 61

The holder who refuses payment by intervention loses his right of recourse against any persons who would have been discharged thereby.

Article 62

Payment by intervention must be authenticated by a receipt given on the bill of exchange mentioning the person for whose honour payment has been made. In default of such mention, payment is deemed to have been made for the honour of the drawer.

The bill of exchange and the protest, if any, must be given up to the person paying by intervention.

Article 63

The person paying by intervention acquires the rights arising out of the bill of exchange against the party for whose honour he has paid and against persons who are liable to the latter on the bill of exchange. Nevertheless, he cannot re-endorse the bill of exchange.

Endorsers subsequent to the party for whose honour payment has been made are discharged.

In case of competition for payment by intervention, the payment which effects the greater number of releases has the preference. Any person who, with a knowledge of the facts, intervenes in a manner contrary to this rule, loses his right of recourse against those who would have been discharged.

CHAPTER IX. PARTS OF A SET AND COPIES

1. PARTS OF A SET

Article 64

A bill of exchange can be drawn in a set of two or more identical parts.

These parts must be numbered in the body of the instrument itself; in default, each part is considered as a separate bill of exchange.

Every holder of a bill which does not specify that it has been drawn as a sole bill may, at his own expense, require the delivery of two or more parts. For this purpose he must apply to his immediate endorser, who is bound to assist him in proceeding against his own endorser, and so on in the series until the drawer is reached. The endorsers are bound to reproduce their endorsements on the new parts of the set.

Article 65

Payment made on one part of a set operates as a discharge, even though there is no stipulation that this payment annuls the effect of the other parts. Nevertheless, the drawee is liable on each accepted part which he has not recovered.

An endorser who has transferred parts of a set to different persons, as well as subsequent endorsers, are liable on all the parts bearing their signature which have not been restored.

Article 66

A party who has sent one part for acceptance must indicate on the other parts the name of the person in whose hands this part is to be found. That person is bound to give it up to the lawful holder of another part.

If he refuses, the holder cannot exercise his right of recourse until he has had a protest drawn up specifying:

(1) That the part sent for acceptance has not been given up to him on his demand;

(2) That acceptance or payment could not be obtained on another of the parts.

2. COPIES

Article 67

Every holder of a bill of exchange has the right to make copies of it.

A copy must reproduce the original exactly, with the endorsements and all other statements to be found therein. It must specify where the copy ends.

It may be endorsed and guaranteed by aval in the same manner and with the same effects as the original.

Article 68

A copy must specify the person in possession of the original instrument. The latter is bound to hand over the said instrument to the lawful holder of the copy.

If he refuses, the holder may not exercise his right of recourse against the persons who have endorsed the copy or guaranteed it by aval until he has had a protest drawn up specifying that the original has not been given up to him on his demand.

Where the original instrument, after the last endorsement before the making of the copy contains a clause “commencing from here an endorsement is only valid if made on the copy” or some equivalent formula, a subsequent endorsement on the original is null and void.

CHAPTER X. ALTERATIONS

Article 69

In case of alteration of the text of a bill of exchange, parties who have signed subsequent to the alteration are bound according to the terms of the altered text; parties who have signed before the alteration are bound according to the terms of the original text.

CHAPTER XI. LIMITATION OF ACTIONS

Article 70

All actions arising out of a bill of exchange against the acceptor are barred after three years, reckoned from the date of maturity.

Actions by the holder against the endorsers and against the drawer are barred after one year from the date of a protest drawn up within proper time, or from the date of maturity where there is a stipulation retour sans frais.

Actions by endorsers against each other and against the drawer are barred after six months, reckoned from the day when the endorser took up and paid the bill or from the day when he himself was sued.

Article 71

Interruption of the period of limitation is only effective against the person in respect of whom the period has been interrupted.

CHAPTER XII. GENERAL PROVISIONS

Article 72

Payment of a bill of exchange which falls due on a legal holiday (jour férié légal) cannot be demanded until the next business day. So, too, all other proceedings relating to a bill of exchange, in particular presentment for acceptance and protest, can only be taken on a business day.

Where any of these proceedings must be taken within a certain limit of time the last day of which is a legal holiday (jour férié légal), the limit of time is extended until the first business day which follows the expiration of that time. Intermediate holidays (jours fériés) are included in computing limits of time.

Article 73

Legal or contractual limits of time do not include the day on which the period commences.

Article 74

No days of grace, whether legal or judicial, are permitted.

TITLE II PROMISSORY NOTES

Article 75

A promissory note contains:

  • (1) The term “promissory note” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument;

  • (2) An unconditional promise to pay a determinate sum of money;

  • (3) A statement of the time of payment;

  • (4) A statement of the place where payment is to be made;

  • (5) The name of the person to whom or to whose order payment is to be made;

  • (6) A statement of the date and of the place where the promissory note is issued;

  • (7) The signature of the person who issues the instrument (maker).

Article 76

An instrument in which any of the requirements mentioned in the preceding article are wanting is invalid as a promissory note except in the cases specified in the following paragraphs:

A promissory note in which the time of payment is not specified is deemed to be payable at sight.

In default of special mention, the place where the instrument is made is deemed to be the place of payment and at the same time the place of the domicile of the maker.

A promissory note which does not mention the place of its issue is deemed to have been made in the place mentioned beside the name of the maker.

Article 77

The following provisions relating to bills of exchange apply to promissory notes so far as they are not inconsistent with the nature of these instruments, viz.:

  • Endorsement (Articles 11 to 20);

  • Time of payment (Articles 33 to 37);

  • Payment (Articles 38 to 42);

  • Recourse in case of non-payment (Articles 43 to 50, 52 to 54);

  • Payment by intervention (Articles 55, 59 to 63);

  • Copies (Articles 67 and 68);

  • Alterations (Article 69);

  • Limitation of actions (Articles 70 and 71);

  • Holidays, computation of limits of time and prohibition of days of grace (Articles 72, 73, and 74).

The following provisions are also applicable to a promissory note: The provisions concerning a bill of exchange payable at the address of a third party or in a locality other than that of the domicile of the drawee (Articles 4 and 27); stipulation for interest (Article 5); discrepancies as regards the sum payable (Article 6); the consequences of signature under the conditions mentioned in Article 7, the consequences of signature by a person who acts without authority or who exceeds his authority (Article 8); and provisions concerning a bill of exchange in blank (Article 10).

The following provisions are also applicable to a promissory note: Provisions relating to guarantee by aval (Articles 30-32); in the case provided for in Article 31, last paragraph, if the aval does not specify on whose behalf it has been given, it is deemed to have been given on behalf of the maker of the promissory note.

Article 78

The maker of a promissory note is bound in the same manner as an acceptor of a bill of exchange.

Promissory notes payable at a certain time after sight must be presented for the visa of the maker within the limits of time fixed by Article 23. The limit of time runs from the date of the visa signed by the maker on the note. The refusal of the maker to give his visa with the date thereon must be authenticated by a protest (Article 25), the date of which marks the commencement of the period of time after sight.

ANNEX II

Article 1

Each of the High Contracting Parties may stipulate that the obligation to insert in bills of exchange issued in its territory the term “bill of exchange”, as laid down in Article 1, 1 of the Uniform Law, shall not apply until six months after the entry into force of the present Convention.

Article 2

Each of the High Contracting Parties has, as regards undertakings entered into in respect of bills of exchange in its own territory, the right to determine in what manner an actual signature may be replaced by an authentic declaration written on the bill which evidences the consent of the party who should have signed.

Article 3

Each of the High Contracting Parties reserves the right not to embody Article 10 of the Uniform Law in its national law.

Article 4

By way of derogation from Article 31, paragraph 1, of the Uniform Law, each of the High Contracting Parties shall have the right to decide that an aval may be given in its territory by a separate instrument specifying the place in which the instrument has been executed.

Article 5

Each of the High Contracting Parties may supplement Article 38 of the Uniform Law so as to provide that the holder of a bill of exchange payable in its territory shall be obliged to present it on the actual day of maturity. Failure to comply with this obligation may only give rise to a right to damages.

The other High Contracting Parties shall have the right to determine the conditions subject to which such obligation will be recognised by them.

Article 6

For the purpose of giving effect to the last paragraph of Article 38 of the Uniform Law, each of the High Contracting Parties shall determine the institutions which, according to its national law, are to be regarded as clearing-houses.

Article 7

Each of the High Contracting Parties shall have the right, if it deems fit, in exceptional circumstances connected with the rate of exchange in such State, to derogate from the stipulation contained in Article 41 for effective payment in foreign currency as regards bills of exchange payable in its territory. The above rule may also be applied as regards the issue in the national territory of bills of exchange payable in foreign currencies.

Article 8

Each of the High Contracting Parties may prescribe that protest to be drawn up in its territory may be replaced by a declaration dated and written on the bill itself, and signed by the drawee, except where the drawer stipulates in the body of the bill of exchange itself for an authenticated protest.

Each of the High Contracting Parties may also prescribe that the said declaration shall be inscribed in a public register within the limit of time fixed for protests.

In the case provided for in the preceding paragraphs, an undated endorsement is presumed to have been made prior to the protest.

Article 9

By way of derogation from Article 44, paragraph 3, of the Uniform Law, each of the High Contracting Parties has the right to prescribe that a protest for non-payment must be drawn up either on the day when the bill is payable or on one of the two following business days.

Article 10

It is reserved to the legislation of each of the High Contracting Parties to determine the exact legal situations referred to in Article 43, Nos. 2 and 3, and in Article 44, paragraphs 5 and 6, of the Uniform Law.

Article 11

By way of derogation from the provisions of Article 43, Nos. 2 and 3, and Article 74 of the Uniform Law, each of the High Contracting Parties reserves the right to include in its legislation the possibility for persons guaranteeing a bill of exchange to obtain, in the event of recourse being exercised against them, periods of grace which may in no case extend beyond the maturity of the bill.

Article 12

By way of derogation from Article 45 of the Uniform Law, each of the High Contracting Parties shall be entitled to maintain or introduce the following system of notification by the public official, viz., that, when protesting for non-acceptance or non-payment, the notary or official who, under the national law, is authorised to draw up the protest, is required to give notice in writing to the persons liable under the bill of exchange whose addresses are specified in the bills or are known to the public official drawing up the protest, or are specified by the persons demanding the protest. The costs of such notice shall be added to the costs of the protest.

Article 13

Each of the High Contracting Parties is entitled to prescribe, as regards bills of exchange which are both issued and payable in its territory, that the rate of interest mentioned in Article 48, No. 2, and Article 49, No. 2, of the Uniform Law be replaced by the legal rate in force in the territory of that High Contracting Party.

Article 14

By derogation from Article 48 of the Uniform Law each of the High Contracting Parties reserves the right to insert in its national law a rule prescribing that the holder may claim from the party against whom he is exercising his right of recourse a commission the amount of which shall be determined by the national law.

The same applies, by derogation from Article 49 of the Uniform Law, to a person who, having taken up and paid the bill of exchange, claims the amount from the parties liable to him.

Article 15

Each of the High Contracting Parties is free to decide that, in the event of extinctive prescription (déchéance) or limitation of actions (prescription), proceedings may be taken in its territory against a drawer who has not provided cover (provision) for the bill, or against a drawer or endorser who has made an inequitable gain. The same right exists in the case of limitation of action as regards an acceptor who has received cover or made an inequitable gain (se serait enrichi injustement).

Article 16

The question whether the drawer is obliged to provide cover (provision) at maturity and whether the holder has special rights to this cover remains outside the scope of the Uniform Law.

The same applies to any other question concerning the legal relations on the basis of which the bill was issued.

Article 17

It is for the legislation of each of the High Contracting Parties to determine the causes of interruption or suspension of limitation (prescription) in the case of actions on bills of exchange which come before its courts.

The other High Contracting Parties are entitled to determine the conditions subject to which they will recognise such causes. The same applies to the effect of an action as a means of indicating the commencement of the period of limitation (prescription) laid down in Article 70, paragraph 3, of the Uniform Law.

Article 18

Each of the High Contracting Parties has the right to prescribe that certain business days shall be assimilated to legal holidays (jours fériés légaux) as regards presentment for acceptance or payment and all other acts relating to bills of exchange.

Article 19

Each of the High Contracting Parties may determine the denomination to be adopted in the national laws for the instruments referred to in Article 75 of the Uniform Law, or may exempt them from any special denomination, provided that they contain an express mention that they are drawn to order.

Article 20

The provisions of Articles 1 to 18 of the present Annex with regard to bills of exchange apply likewise to promissory notes.

Article 21

Each of the High Contracting Parties reserves the right to restrict the undertaking mentioned in Article 1 of the Convention to the provisions dealing with bills of exchange only, and not to introduce into its territory the provisions dealing with promissory notes contained in Title II of the Uniform Law. In this case the High Contracting Party making use of this reservation shall only be regarded as a contracting party in respect of bills of exchange.

Each of the High Contracting Parties further reserves the right to embody the provisions concerning promissory notes in a special regulation, which shall exactly conform to the stipulations in Title II of the Uniform Law and which shall reproduce the rules on bills of exchange to which reference is made, subject only to the modifications resulting from Articles 75, 76, 77 and 78 of the Uniform Law and from Articles 19 and 20 of the present Annex.

Article 22

Each of the High Contracting Parties has the right to adopt exceptional measures of a general nature relating to the extension of the limits of time for conservatory measures in relation to recourse (actes conservatoires des recours) and to the extension of maturities.

Article 23

Each of the High Contracting Parties undertakes to recognise the provisions adopted by every other High Contracting Party in virtue of Articles 1 to 4, 6, 8 to 16 and 18 to 21 of the present Annex.

2 Convention Providing a Uniform Law for Cheques

Article I1

The High Contracting Parties undertake to introduce in their respective territories, either in one of the original texts or in their own languages, the Uniform Law forming Annex I of the present Convention.

This undertaking shall, if necessary, be subject to such reservations as each High Contracting Party shall notify at the time of its ratification or accession. These reservations shall be chosen from among those mentioned in Annex II of the present Convention.

The reservations referred to in Articles 9, 22, 27 and 30 of the said Annex II may, however, be made after ratification or accession, provided that they are notified to the Secretary-General of the League of Nations, who shall forthwith communicate the text thereof to the Members of the League of Nations and to the non-member States on whose behalf the present Convention has been ratified or acceded to. Such reservations shall not take effect until the ninetieth day following the receipt by the Secretary-General of the above-mentioned notification.

Each of the High Contracting Parties may, in urgent cases, make use of the reservations contained in Articles 17 and 28 of the said Annex II, even after ratification or accession. In such cases, they must immediately notify direct all other High Contracting Parties and the Secretary-General of the League of Nations. The notification of these reservations shall take effect two days following its receipt by the High Contracting Parties.

Article II

In the territories of each of the High Contracting Parties, the Uniform Law shall not apply to cheques already issued at the time of the coming into force of the present Convention.

Article III

The present Convention, the French and English texts of which shall be equally authentic, shall bear this day’s date.

It may be signed thereafter until July 15th, 1931, on behalf of any Member of the League of Nations or non-member State.

Article IV

The present Convention shall be ratified.

The instruments of ratification shall be deposited before September 1, 1933, with the Secretary-General of the League of Nations, who shall forthwith notify receipt thereof to all the Members of the League of Nations and to the non-member States on whose behalf the present Convention has been signed or acceded to.

Article V

As from July 15, 1931, any Member of the League of Nations and any non-member State may accede thereto.

Such accession shall be effected by a notification to the Secretary-General of the League of Nations, such notification to be deposited in the archives of the Secretariat.

The Secretary-General shall notify such deposit forthwith to all the Members of the League of Nations and to the non-member States on whose behalf the present Convention has been signed or acceded to.

Article VI

The present Convention shall not come into force until it has been ratified or acceded to on behalf of seven Members of the League of Nations or non-member States, including therein three of the Members of the League permanently represented on the Council.

The date of entry into force shall be the ninetieth day following the receipt by the Secretary-General of the League of Nations of the seventh ratification or accession in accordance with the first paragraph of the present Article.

The Secretary-General of the League of Nations, when making the notifications provided for in Articles IV and V, shall state in particular that the ratifications or accessions referred to in the first paragraph of the present Article have been received.

Article VII

Every ratification or accession effected after the entry into force of the Convention in accordance with Article VI shall take effect on the ninetieth day following the date of receipt thereof by the Secretary-General of the League of Nations.

Article VIII

Except in urgent cases, the present Convention may not be denounced before the expiry of two years from the date on which it has entered into force in respect of the Member of the League or non-member State denouncing it; such denunciation shall take effect as from the ninetieth day following the receipt by the Secretary-General of the notification addressed to him.

Every denunciation shall be immediately communicated by the Secretary-General of the League of Nations to all the other High Contracting Parties.

In urgent cases a High Contracting Party which denounces the Convention shall immediately notify direct all other High Contracting Parties, and the denunciation shall take effect two days after the receipt of such notification by the said High Contracting Parties. A High Contracting Party denouncing the Convention in these circumstances shall also inform the Secretary-General of the League of Nations of its decision.

Each denunciation shall take effect only as regards the High Contracting Party on whose behalf it has been made.

Article IX

Every Member of the League of Nations and every non-member State in respect of which the present Convention is in force may forward to the Secretary-General of the League of Nations, after the expiry of the fourth year following the entry into force of the Convention, a request for the revision of some or all of the provisions of this Convention.

If such request, after being communicated to the other Members or non-member States between which the Convention is at that time in force, is supported within one year by at least six of them, the Council of the League of Nations shall decide whether a Conference shall be convened for the purpose.

Article X

The High Contracting Parties may declare at the time of signature, ratification or accession, that it is not their intention in accepting the present Convention to assume any liability in respect of all or any of their colonies, protectorates or territories under suzerainty or mandate, in which case the present Convention shall not be applicable to the territories mentioned in such declaration.

The High Contracting Parties may any time subsequently inform the Secretary-General of the League of Nations that they intend to apply the present Convention to all or any of their territories referred to in the declaration provided for in the preceding paragraph. In this case, the Convention shall apply to the territories referred to in the notification ninety days after its receipt by the Secretary-General of the League of Nations.

They further reserve the right to denounce it, in accordance with the conditions of Article VIII, on behalf of all or any of their colonies, protectorates or territories under suzerainty or mandate.

Article XI

The present Convention shall be registered by the Secretary-General of the League of Nations as soon as it comes into force.

* * *

In faith whereof the above-mentioned Plenipotentiaries have signed the present Convention.

DONE at Geneva, the nineteenth day of March, one thousand nine hundred and thirty-one, in a single copy, which shall be deposited in the archives of the Secretariat of the League of Nations, and of which authenticated copies shall be delivered to all Members of the League of Nations and non-member States represented at the Conference.

ANNEX I UNIFORM LAW ON CHEQUES

CHAPTER I. THE DRAWING AND FORM OF A CHEQUE

Article 1

A cheque contains:

  • 1. The term “cheque” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument;

  • 2. An unconditional order to pay a determinate sum of money;

  • 3. The name of the person who is to pay (drawee);

  • 4. A statement of the place where payment is to be made;

  • 5. A statement of the date when and the place where the cheque is drawn;

  • 6. The signature of the person who draws the cheque (drawer).

Article 2

An instrument in which any of the requirements mentioned in the preceding article is wanting is invalid as a cheque, except in the cases specified in the following paragraphs:

In the absence of special mention, the place specified beside the name of the drawee is deemed to be the place of payment. If several places are named beside the name of the drawee, the cheque is payable at the first place named.

In the absence of these statements, and of any other indication, the cheque is payable at the place where the drawee has his principal establishment.

A cheque which does not specify the place at which it was drawn is deemed to have been drawn in the place specified beside the name of the drawer.

Article 3

A cheque must be drawn on a banker holding funds at the disposal of the drawer and in conformity with an agreement, express or implied, whereby the drawer is entitled to dispose of those funds by cheque. Nevertheless, if these provisions are not complied with, the instrument is still valid as a cheque.

Article 4

A cheque cannot be accepted. A statement of acceptance on a cheque shall be disregarded.

Article 5

A cheque may be made payable:

  • To a specified person with or without the express clause “to order”, or

  • To a specified person, with the words “not to order” or equivalent words, or

  • To bearer.

A cheque made payable to a specified person with the words “or to bearer”, or any equivalent words, is deemed to be a cheque to bearer.

A cheque which does not specify the payee is deemed to be a cheque to bearer.

Article 6

A cheque may be drawn to the drawer’s own order.

A cheque may be drawn for account of a third person.

A cheque may not be drawn on the drawer himself unless it is drawn by one establishment on another establishment belonging to the same drawer.

Article 7

Any stipulation concerning interest which may be embodied in the cheque shall be disregarded.

Article 8

A cheque may be payable at the domicile of a third person either in the locality where the drawee has his domicile or in another locality, provided always that such third person is a banker.

Article 9

Where the sum payable by a cheque is expressed in words and also in figures, and there is any discrepancy, the sum denoted by the words is the amount payable.

Where the sum payable by a cheque is expressed more than once in words or more than once in figures, and there is any discrepancy, the smaller sum is the sum payable.

Article 10

If a cheque bears signatures of persons incapable of binding themselves by a cheque, or forged signatures, or signatures of fictitious persons, or signatures which for any other reason cannot bind the persons who signed the cheque or on whose behalf it was signed, the obligations of the other persons who have signed it are none the less valid.

Article 11

Whosoever puts his signature on a cheque as representing a person for whom he had no power to act is bound himself as a party to the cheque and, if he pays, has the same rights as the person for whom he purported to act. The same rule applies to a representative who has exceeded his powers.

Article 12

The drawer guarantees payment. Any stipulation by which the drawer releases himself from this guarantee shall be disregarded.

Article 13

If a cheque which was incomplete when issued has been completed otherwise than in accordance with the agreements entered into, the non-observance of such agreements may not be set up against the holder unless he has acquired the cheque in bad faith or, in acquiring it, has been guilty of gross negligence.

CHAPTER II. NEGOTIATION

Article 14

A cheque made payable to a specified person, with or without the express clause “to order”, may be transferred by means of endorsement.

A cheque made payable to a specified person, in which the words “not to order” or any equivalent expression have been inserted, can only be transferred according to the form and with the effects of an ordinary assignment.

A cheque may be endorsed even to the drawer or to any other party to the cheque. These persons may re-endorse the cheque.

Article 15

An endorsement must be unconditional. Any condition to which it is made subject shall be disregarded.

A partial endorsement is null and void.

An endorsement by the drawee is also null and void.

An endorsement “to bearer” is equivalent to an endorsement in blank.

An endorsement to the drawee has the effect only of a receipt, except in the case where the drawee has several establishments and the endorsement is made in favour of an establishment other than that on which the cheque has been drawn.

Article 16

An endorsement must be written on the cheque or on a slip affixed thereto (allonge). It must be signed by the endorser.

The endorsement may leave the beneficiary unspecified or may consist simply of the signature of the endorser (endorsement in blank). In the latter case, the endorsement, to be valid, must be written on the back of the cheque or on the slip attached thereto (allonge).

Article 17

An endorsement transfers all the rights arising out of a cheque.

If the endorsement is in blank, the holder may:

  • (1) Fill up the blank either with his own name or with the name of some other person;

  • (2) Re-endorse the cheque in blank or to some other person;

  • (3) Transfer the cheque to a third person without filling up the blank and without endorsing it.

Article 18

In the absence of any contrary stipulation, the endorser guarantees payment.

He may prohibit any further endorsement; in this case he gives no guarantee to the persons to whom the cheque is subsequently endorsed.

Article 19

The possessor of an endorsable cheque is deemed to be the lawful holder if he establishes his title to the cheque through an uninterrupted series of endorsements, even if the last endorsement is in blank. In this connection, cancelled endorsements shall be disregarded. When an endorsement in blank is followed by another endorsement, the person who signed this last endorsement is deemed to have acquired the cheque by the endorsement in blank.

Article 20

An endorsement on a cheque to bearer renders the endorser liable in accordance with the provisions governing the right of recourse; but it does not convert the instrument into a cheque to order.

Article 21

Where a person has, in any manner whatsoever, been dispossessed of a cheque (whether it is a cheque to bearer or an endorsable cheque to which the holder establishes his right in the manner mentioned in Article 19), the holder into whose possession the cheque has come is not bound to give up the cheque unless he has acquired it in bad faith or unless in acquiring it he has been guilty of gross negligence.

Article 22

Persons sued on a cheque cannot set up against the holder defences founded on their personal relations with the drawer or with previous holders, unless the holder in acquiring the cheque has knowingly acted to the detriment of the debtor.

Article 23

When an endorsement contains the statement “value in collection” (“valeur en recouvrement”), “for collection” (“pour encaissement”), “by procuration” (“par procuration”), or any other phrase implying a simple mandate, the holder may exercise all rights arising out of the cheque, but he can endorse it only in his capacity as agent.

In this case the parties liable can only set up against the holder defences which could be set up against the endorser.

The mandate contained in an endorsement by procuration does not terminate by reason of the death of the party giving the mandate or by reason of his becoming legally incapable.

Article 24

An endorsement after protest or after an equivalent declaration or after the expiration of the limit of time for presentment operates only as an ordinary assignment.

Failing proof to the contrary, an undated endorsement is deemed to have been placed on the cheque prior to the protest or equivalent declaration or prior to the expiration of the limit of time referred to in the preceding paragraph.

CHAPTER III. “AVALS”

Article 25

Payment of a cheque may be guaranteed by an “aval” as to the whole or part of its amount.

This guarantee may be given by a third person other than the drawee, or even by a person who has signed the cheque.

Article 26

An “aval” is given either on the cheque itself or on an “allonge”.

It is expressed by the words “good as aval”, or by any other equivalent formula. It is signed by the giver of the “aval”.

It is deemed to be constituted by the mere signature of the giver of the “aval”, placed on the face of the cheque, except in the case of the signature of the drawer.

An “aval” must specify for whose account it is given. In default of this, it is deemed to be given for the drawer.

Article 27

The giver of an “aval” is bound in the same manner as the person for whom he has become guarantor.

His undertaking is valid even when the liability which he has guaranteed is inoperative for any reason other than defect of form.

He has, when he pays the cheque, the rights arising out of the cheque against the person guaranteed and against those who are liable to the latter on the cheque.

CHAPTER IV. PRESENTMENT AND PAYMENT

Article 28

A cheque is payable at sight. Any contrary stipulation shall be disregarded.

A cheque presented for payment before the date stated as the date of issue is payable on the day of presentment.

Article 29

A cheque payable in the country in which it was issued must be presented for payment within eight days.

A cheque issued in a country other than in which it is payable must be presented within a period of twenty days or of seventy days, according as to whether the place of issue and the place of payment are situated respectively in the same continent or in different continents.

For the purposes of this article cheques issued in a European country and payable in a country bordering on the Mediterranean or vice versa are regarded as issued and payable in the same continent.

The date from which the above-mentioned periods of time shall begin to run shall be the date stated on the cheque as the date of issue.

Article 30

Where a cheque is drawn in one place and is payable in another having a different calendar, the day of issue shall be construed as being the corresponding day of the calendar of the place of payment.

Article 31

Presentment of a cheque at a clearing-house is equivalent to presentment for payment.

Article 32

The countermand of a cheque only takes effect after the expiration of the limit of time for presentment.

If a cheque has not been countermanded, the drawee may pay it even after the expiration of the time-limit.

Article 33

Neither the death of the drawer nor his incapacity taking place after the issue of the cheque shall have any effect as regards the cheque.

Article 34

The drawee who pays a cheque may require that it shall be given up to him receipted by the holder.

The holder may not refuse partial payment.

In case of partial payment the drawee may require that the partial payment shall be mentioned on the cheque and that a receipt shall be given to him.

Article 35

The drawee who pays an endorsable cheque is bound to verify the regularity of the series of endorsements, but not the signature of the endorsers.

Article 36

When a cheque is drawn payable in a currency which is not that of the place of payment, the sum payable may, within the limit of time for the presentment of the cheque, be paid in the currency of the country according to its value on the date of payment. If payment has not been made on presentment, the holder may at his option demand that payment of the amount of the cheque in the currency of the country shall be made according to the rate on the day of presentment or on the day of payment.

The usages of the place of payment shall be applied in determining the value of foreign currency. Nevertheless, the drawer may stipulate that the sum payable shall be calculated according to a rate expressed in the cheque.

The foregoing rules shall not apply to the case in which the drawer has stipulated that payment must be made in a certain specified currency (stipulation for effective payment in a foreign currency).

If the amount of the cheque is specified in a currency having the same denomination but a different value in the country of issue and the country of payment, reference is deemed to be made to the currency of the place of payment.

CHAPTER V. CROSSED CHEQUES AND CHEQUES PAYABLE IN ACCOUNT

Article 37

The drawer or holder of a cheque may cross it with the effects stated in the next article hereof.

A crossing takes the form of two parallel lines drawn on the face of the cheque. The crossing may be general or special.

The crossing is general if it consists of the two lines only or if between the lines the term “banker” or some equivalent is inserted; it is special if the name of a banker is written between the lines.

A general crossing may be converted into a special crossing, but a special crossing may not be converted into a general crossing.

The obliteration either of a crossing or of the name of the banker shall be regarded as not having taken place.

Article 38

A cheque which is crossed generally can be paid by the drawee only to a banker or to a customer of the drawee.

A cheque which is crossed specially can be paid by the drawee only to the named banker, or if the latter is the drawee, to his customer. Nevertheless, the named banker may procure the cheque to be collected by another banker.

A banker may not acquire a crossed cheque except from one of his customers or from another banker. He may not collect it for the account of other persons than the foregoing.

A cheque bearing several special crossings may not be paid by the drawee except in a case where there are two crossings, one of which is for collection through a clearing-house.

The drawee or banker who fails to observe the above provisions is liable for resulting damage up to the amount of the cheque.

Article 39

The drawer or the holder of a cheque may forbid its payment in cash by writing transversally across the face of the cheque the words “payable in account” (“à porter en compte”) or a similar expression.

In such a case the cheque can only be settled by the drawee by means of book-entry (credit in account, transfer from one account to another, set off or clearing-house settlement). Settlement by book-entry is equivalent to payment.

Any obliteration of the words “payable in account” shall be deemed not to have taken place.

The drawee who does not observe the foregoing provisions is liable for resulting damage up to the amount of the cheque.

CHAPTER VI. RECOURSE FOR NON-PAYMENT

Article 40

The holder may exercise his right of recourse against the endorsers, the drawer and the other parties liable if the cheque on presentment in due time is not paid, and if the refusal to pay is evidenced:

  • (1) By a formal instrument (protest), or

  • (2) By a declaration dated and written by the drawee on the cheque and specifying the day of presentment, or

  • (3) By a dated declaration made by a clearing-house, stating that the cheque has been delivered in due time and has not been paid.

Article 41

The protest or equivalent declaration must be made before the expiration of the limit of time for presentment.

If the cheque is presented on the last day of the limit of time, the protest may be drawn up or the equivalent declaration made on the first business day following.

Article 42

The holder must give notice of non-payment to his endorser and to the drawer within the four business days which follow the day on which the protest is drawn up or the equivalent declaration is made or, in case of a stipulation (retour sans frais), the day of presentment. Every endorser must, within the two business days following the day on which he receives notice, inform his endorser of the notice which he has received, mentioning the names and addresses of those who have given the previous notices and so on through the series until the drawer is reached. The periods mentioned above run from the receipt of the preceding notice.

When, in conformity with the preceding paragraph, notice is given to a person who has signed a cheque, the same notice must be given within the same limit of time to his avaliseur.

Where an endorser either has not specified his address or has specified it in an illegible manner, it is sufficient if notice is given to the endorser preceding him.

The person who must give notice may give it in any form whatever, even by simply returning the cheque.

He must prove that he has given notice within the limit of time prescribed. This time-limit shall be regarded as having been observed if a letter giving the notice has been posted within the said time.

A person who does not give notice within the limit of time prescribed above does not forfeit his rights. He is liable for the damage, if any, caused by his negligence, but the amount of his liability shall not exceed the amount of the cheque.

Article 43

The drawer, an endorser, or an avaliseur may, by the stipulation “retour sans frais”, “sans protêt”, or any other equivalent expression written on the instrument and signed, release the holder from having a protest drawn up or an equivalent declaration made in order to exercise his right of recourse.

This stipulation does not release the holder from presenting the cheque within the prescribed limit of time, or from giving the requisite notices. The burden of proving the non-observance of the limit of time lies on the person who seeks to set it up against the holder.

If the stipulation is written by the drawer, it is operative in respect of all persons who have signed the cheque; if it is written by an endorser or an avaliseur, it is operative only in respect of such endorser or avaliseur. If, in spite of the stipulation written by the drawer, the holder has the protest drawn up or the equivalent declaration made, he must bear the expenses thereof. When the stipulation emanates from an endorser or avaliseur, the costs of the protest or equivalent declaration, if drawn up or made, may be recovered from all the persons who have signed the cheque.

Article 44

All the persons liable on a cheque are jointly and severally bound to the holder.

The holder has the right to proceed against all these persons individually or collectively without being compelled to observe the order in which they have become bound.

The same right is possessed by any person signing the cheque who has taken it up and paid it.

Proceedings against one of the parties liable do not prevent proceedings against the others, even though such other parties may be subsequent to the party first proceeded against.

Article 45

The holder may claim from the party against whom he exercises his right of recourse:

  • (1) The unpaid amount of the cheque;

  • (2) Interest at the rate of 6% as from the date of presentment;

  • (3) The expenses of the protest or equivalent declaration, and of the notices given as well as other expenses.

Article 46

A party who takes up and pays a cheque can recover from the parties liable to him:

  • (1) The entire sum which he has paid;

  • (2) Interest on the said sum calculated at the rate of 6%, as from the day on which he made payment;

  • (3) Any expenses which he has incurred.

Article 47

Every party liable against whom a right of recourse is, or may be, exercised, can require against payment, that the cheque shall be given up to him with the protest or equivalent declaration and a receipted account.

Every endorser who has taken up and paid a cheque may cancel his own endorsement and those of subsequent endorsers.

Article 48

Should the presentment of the cheque or the drawing up of the protest or the making of the equivalent declaration within the prescribed limits of time be prevented by an insurmountable obstacle (legal prohibition (prescription légale) by any State or other case of vis major), these limits of time shall be extended.

The holder is bound to give notice without delay of the case of vis major to his endorser and to make a dated and signed declaration of this notice, on the cheque or on an allonge; in other respects, the provisions of Article 42 shall apply.

When vis major has terminated, the holder must without delay present the cheque for payment and, if need be, procure a protest to be drawn up or an equivalent declaration made.

If vis major continues to operate beyond fifteen days after the date on which the holder, even before the expiration of the time-limit for presentment, has given notice of vis major to his endorser, recourse may be exercised and neither presentment nor a protest nor an equivalent declaration shall be necessary.

Facts which are purely personal to the holder or the person whom he has entrusted with the presentment of the cheque or the drawing up of the protest or the making of the equivalent declaration are not deemed to constitute cases of vis major.

CHAPTER VII. PARTS OF A SET

Article 49

With the exception of bearer cheques, any cheque issued in one country and payable in another or payable in a separate part overseas of the same country or vice versa, or issued and payable in the same or in different parts overseas of the same country, may be drawn in a set of identical parts. When a cheque is in a set of parts, each part must be numbered in the body of the instrument, failing which each part is deemed to be a separate cheque.

Article 50

Payment made on one part operates as a discharge, even though there is no stipulation that such payment shall render the other parts of no effect.

An endorser who has negotiated parts to different persons and also the endorsers subsequent to him are liable on all the parts bearing their signatures, which have not been given up.

CHAPTER VIII. ALTERATIONS

Article 51

In case of alteration of the text of a cheque, parties who have signed subsequent to the alteration are bound according to the terms of the altered text; parties who have signed before the alteration are bound according to the terms of the original text.

CHAPTER IX. LIMITATION OF ACTIONS

Article 52

Actions of recourse by the holder against the endorsers, the drawer and the other parties liable are barred after six months as from the expiration of the limit of time fixed for presentment.

Actions of recourse by the different parties liable for the payment of a cheque against other such parties are barred after six months as from the day on which the party liable has paid the cheque or the day on which he was sued thereon.

Article 53

Interruption of the period of limitation is only effective against the person in respect of whom the period has been interrupted.

CHAPTER X. GENERAL PROVISIONS

Article 54

In the present law the word “banker” includes the persons or institutions assimilated by the law to bankers.

Article 55

The presentment or protest of a cheque may only take place on a business day.

When the last day of the limit of time prescribed by the law for performing any act relating to a cheque, and particularly for presentment or for the drawing up of a protest or the making of an equivalent declaration, is a legal holiday, the limit of time is extended until the first business day which follows the expiration of that time. Intermediate holidays are included in computing limits of time.

Article 56

The limits of time stipulated in the present law shall not include the day on which the period commences.

Article 57

No days of grace, whether legal or judicial, are permitted.

ANNEX II

Each of the High Contracting Parties may prescribe that the obligation to insert in cheques drawn in his territory the term “cheque”, as laid down in Article 1, No. 1 of the Uniform Law, and the obligation stipulated in No. 5 of the said article to state the place where the cheque was drawn, shall not apply until six months after the entry into force of the present Convention.

Article 2

Each of the High Contracting Parties may, as regards undertakings entered into in respect of cheques in his own territory, determine in what manner an actual signature may be replaced by an authentic declaration written on the cheque which evidences the consent of the party who should have signed.

Article 3

By way of derogation from Article 2, paragraph 3, of the Uniform Law, each of the High Contracting Parties may prescribe that a cheque which does not specify the place of payment shall be regarded as payable at the place where it was drawn.

Article 4

Each of the High Contracting Parties reserves the right, with regard to cheques issued and payable in his territory, to decide that instruments drawn on persons other than bankers or persons or institutions assimilated by the law to bankers, shall not be valid as cheques.

Each of the High Contracting Parties also reserves the right to embody Article 3 of the Uniform Law in his national law in the form and in the terms best suited to the use he may make of the provisions of the preceding paragraph.

Article 5

Each of the High Contracting Parties may determine the moment at which the drawer must have funds available with the drawee.

Article 6

Each of the High Contracting Parties may provide that a drawee may write on the cheque a statement of certification, confirmation, visa, or other equivalent declaration, provided that such declaration shall not operate as an acceptance, and may also determine the legal effects thereof.

Article 7

By way of derogation from Articles 5 and 14 of the Uniform Law, each of the High Contracting Parties reserves the right to prescribe, as regards cheques payable in his territory, and marked “not transferable”, that a cheque of this description may be paid only to the holder who has received it thus marked.

Article 8

Each of the High Contracting Parties reserves the right to determine whether, apart from the cases referred to in Article 6 of the Uniform Law, a cheque may be drawn on the drawer himself.

Article 9

By way of derogation from Article 6 of the Uniform Law, each of the High Contracting Parties, whether as a general rule he allows cheques to be drawn on the drawer himself (Article 8 of the present Annex), or whether he allows such cheques to be drawn only in the case of businesses with several establishments (Article 6 of the Uniform Law), reserves the right to prohibit the issue of cheques of this kind to bearer.

Article 10

By way of derogation from Article 8 of the Uniform Law, each of the High Contracting Parties reserves the right to allow a cheque to be made payable at the domicile of a third person other than a banker.

Article 11

Each of the High Contracting Parties reserves the right not to embody Article 13 of the Uniform Law in his national law.

Article 12

Each of the High Contracting Parties reserves the right not to apply Article 21 of the Uniform Law so far as bearer cheques are concerned.

Article 13

By way of derogation from Article 26 of the Uniform Law, each of the High Contracting Parties has the right to decide that an “aval” may be given in his territory by a separate instrument specifying the place in which the instrument has been executed.

Article 14

Each of the High Contracting Parties reserves the right to prolong the time-limit provided for in the first paragraph of Article 29 of the Uniform Law and to fix the limits of time for presentment as regards the territories under his sovereignty or authority.

Each of the High Contracting Parties, by way of derogation from Article 29, paragraph 2, of the Uniform Law, reserves the right to prolong the time-limits provided for in the said paragraph for cheques issued and payable in different continents or in different countries in a continent other than Europe.

Two or more of the High Contracting Parties may agree, as regards cheques issued and payable in their respective territories, to modify the time-limits provided for in Article 29, paragraph 2, of the Uniform Law.

Article 15

For the purpose of giving effect to Article 31 of the Uniform Law, each of the High Contracting Parties may determine the institutions which according to his national law are to be regarded as clearing-houses.

Article 16

By way of derogation from Article 32 of the Uniform Law, each of the High Contracting Parties reserves the right in regard to cheques payable in his territory:

  • (a). To allow the countermand of a cheque even before the expiration of the limit of the time for presentment;

  • (b). To prohibit the countermand of a cheque even after the expiration of the limit of time for presentment.

Furthermore, each of the High Contracting Parties may determine the measures to be taken in case of the loss or theft of a cheque, and may regulate the legal consequences thereof.

Article 17

Each of the High Contracting Parties may, if he deems it necessary, in exceptional circumstances connected with the rate of exchange of the currency of his country, derogate from the stipulation contained in Article 36 of the Uniform Law for effective payment in foreign currency as regards cheques payable in his territory. The above rule may also be applied as regards the issue in the national territory of cheques payable in foreign currency.

Article 18

Each of the High Contracting Parties reserves the right, by way of derogation from Articles 37, 38, and 39 of the Uniform Law, to recognise in his national law only crossed cheques or only cheques payable in account. Nevertheless, crossed cheques and cheques payable in account issued abroad and payable in the territory of each of the High Contracting Parties shall be treated as cheques payable in account and as crossed cheques respectively.

Each of the High Contracting Parties may also determine the wording which, under its national law, shall indicate that the cheque is a cheque payable in account.

Article 19

The question whether the holder has special rights to the cover and the consequences of these rights remain outside the scope of the Uniform Law.

The same applies to any other question concerning the legal relations on the basis of which the cheque is issued.

Article 20

Each of the High Contracting Parties reserves the right not to make it a condition for the exercise of the right of recourse against the drawer that the cheque must be presented and the protest drawn up or an equivalent declaration made within due time, and to determine the effects of this recourse.

Article 21

Each of the High Contracting Parties reserves the right to prescribe, as regards cheques payable in his territory, that the declaration of the refusal of payment stipulated in Articles 40 and 41 of the Uniform Law as a condition of the preservation of the right of recourse must in each and every case take the form of a protest to the exclusion of any equivalent declaration.

Each of the High Contracting Parties may also prescribe that the declarations provided for in Nos. 2 and 3 of Article 40 of the Uniform Law must be entered in a public register within the limit of time fixed for the protest.

Article 22

By way of derogation from Article 42 of the Uniform Law, each of the High Contracting Parties may maintain or introduce the following system of notification by the public official—viz., that, when drawing up the protest, the notary or official who, under the national law, is authorised to draw up the protest is required to give notice in writing to the persons liable on the cheque whose addresses are specified in the cheque or are known to the public official drawing up the protest, or are specified by the persons demanding the protest. The expenses of such notice shall be added to the expenses of the protest.

Article 23

Each of the High Contracting Parties may prescribe, as regards cheques which are both issued and payable in his territory, that the rate of interest mentioned in Article 45, No. 2, and in Article 46, No. 2, of the Uniform Law may be replaced by the legal rate in force in his territory.

Article 24

By way of derogation from Article 45 of the Uniform Law, each of the High Contracting Parties reserves the right to insert in his national law a rule prescribing that the holder may claim from the party against whom he is exercising his right of recourse a commission the amount of which shall be determined by that law.

By way of derogation from Article 46 of the Uniform Law, the same applies to a person who, having taken up and paid the cheque, claims the amount from the parties liable to him.

Article 25

Each of the High Contracting Parties is free to decide that, in the event of forfeiture of rights or limitation of actions, proceedings may be taken in his territory against a drawer who has not provided cover or against a drawer or endorser who has made an inequitable gain (condictiones).

Article 26

It is for the legislation of each of the High Contracting Parties to determine the causes of interruption or suspension of limitation in the case of actions on cheques which are brought before his courts.

The other High Contracting Parties may determine the conditions under which they will recognise such causes. The same applies to the effect of an action as a means of indicating the commencement of the period of limitation laid down in Article 52, paragraph 2, of the Uniform Law.

Article 27

Each of the High Contracting Parties may prescribe that certain business days shall be assimilated to legal holidays as regards the limit of time for presentment and all acts relating to cheques.

Article 28

Each of the High Contracting Parties may enact exceptional measures of a general nature relating to the postponement of payment and to the limits of time for conservatory measures in relation to recourse (actes conservatoires des recours).

Article 29

For the purpose of giving effect to the Uniform Law, it is within the competence of each of the High Contracting Parties to determine what persons are to be regarded as bankers and what persons or institutions are, in view of the nature of their activities, to be assimilated to bankers.

Article 30

Each of the High Contracting Parties reserves the right to exclude the application of the Uniform Law in whole or in part in regard to postal cheques, and in regard to the special cheque of banks of issue or of public revenue offices or of public credit institutions, in so far as the instruments mentioned above are subject to special regulations.

Article 31

Each of the High Contracting Parties undertakes to recognise the provisions adopted by every other High Contracting Party in virtue of Articles 1 to 13, 14 (paragraphs 1 and 2), 15 and 16, 18 to 25, 27, 29 and 30 of the present Annex.

3 U.K. Bills of Exchange Act, 18821

Part I2

Preliminary

1. Short title. This Act may be cited as the Bills of Exchange Act, 1882.

2. Interpretation of terms. In this Act, unless the context otherwise requires,—

“Acceptance” means an acceptance completed by delivery or notification.

“Action” includes counter claim and set off.

“Banker” includes a body of persons whether incorporated or not who carry on the business of banking.

“Bankrupt” includes any person whose estate is vested in a trustee or assignee under the law for the time being in force relating to bankruptcy.

“Bearer” means the person in possession of a bill or note which is payable to bearer.

“Bill” means bill of exchange, and “note” means promissory note.

“Delivery” means transfer of possession, actual or constructive, from one person to another.

“Holder” means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.

“Indorsement” means an indorsement completed by delivery.

“Issue” means the first delivery of a bill or note, complete in form to a person who takes it as a holder.

“Person” includes a body of persons whether incorporated or not.

“Value” means valuable consideration.

“Written” includes printed, and “writing” includes print.

Part II

Bills of Exchange

Form and Interpretation

3. Bill of exchange defined. (1) A bill of exchange is 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.

(2) An instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment of money, is not a bill of exchange.

(3) An order to pay out of a particular fund is not unconditional within the meaning of this section; but an unqualified order to pay, coupled with (a) an indication of a particular fund out of which the drawee is to reimburse himself or a particular account to be debited with the amount, or (b) a statement of the transaction which gives rise to the bill, is unconditional.

(4) A bill is not invalid by reason—

  • (a) That it is not dated;

  • (b) That it does not specify the value given, or that any value has been given therefor;

  • (c) That it does not specify the place where it is drawn or the place where it is payable.

4. Inland and foreign bills. (1) An inland bill is a bill which is or on the face of it purports to be

  • (a) both drawn and payable within the British Islands, or

  • (b) drawn within the British Islands upon some person resident therein. Any other bill is a foreign bill.

For the purposes of this Act “British Islands” mean any part of the United Kingdom of Great Britain and Ireland, the islands of Man, Guernsey, Jersey, Alderney, and Sark, and the islands adjacent to any of them being part of the dominions of Her Majesty.

  • (2) Unless the contrary appear on the face of the bill the holder may treat it as an inland bill.

5. Effect where different parties to bill are the same person. (1) A bill may be drawn payable to, or to the order of, the drawer; or it may be drawn payable to, or to the order of, the drawee.

(2) Where in a bill drawer and drawee are the same person, or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange or as a promissory note.

6. Address to drawee. (1) The drawee must be named or otherwise indicated in a bill with reasonable certainty.

(2) A bill may be addressed to two or more drawees whether they are partners or not, but an order addressed to two drawees in the alternative or to two or more drawees in succession is not a bill of exchange.

7. Certainty required as to payee. (1) Where a bill is not payable to bearer, the payee must be named or otherwise indicated therein with reasonable certainty.

(2) A bill may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. A bill may also be made payable to the holder of an office for the time being.

(3) Where the payee is a fictitious or non-existing person the bill may be treated as payable to bearer.

8. What bills are negotiable. (1) When a bill contains words prohibiting transfer, or indicating an intention that it should not be transferable, it is valid as between the parties thereto, but is not negotiable.

(2) A negotiable bill may be payable either to order or to bearer.

(3) A bill is payable to bearer which is expressed to be so payable, or on which the only or last indorsement is an indorsement in blank.

(4) A bill is payable to order which is expressed to be so payable, or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it should not be transferable.

(5) Where a bill, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.

9. Sum payable. (1) The sum payable by a bill is a sum certain within the meaning of this Act, although it was required to be paid—

  • (a) With interest.

  • (b) By stated instalments.

  • (c) By stated instalments, with a provision that upon default in payment of any instalment the whole shall become due.

  • (d) According to an indicated rate of exchange or according to a rate of exchange to be ascertained as directed by the bill.

(2) Where the sum payable is expressed in words and also in figures, and there is a discrepancy between the two, the sum denoted by the words is the amount payable.

(3) Where a bill is expressed to be payable with interest, unless the instrument otherwise provides, interest runs from the date of the bill, and if the bill is undated from the issue thereof.

10. Bill payable on demand. (1) A bill is payable on demand—

  • (a) Which is expressed to be payable on demand, or at sight, or on presentation; or

  • (b) In which no time for payment was expressed.

(2) Where a bill is accepted or indorsed when it is overdue, it shall, as regards the acceptor who so accepts, or any indorser who so indorses it, be deemed a bill payable on demand.

11. Bill payable at a future time. A bill is payable at a determinable future time within the meaning of this Act which is expressed to be payable—

  • (1) At a fixed period after date or sight.

  • (2) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening may be uncertain.

An instrument expressed to be payable on a contingency is not a bill, and the happening of the event does not cure the defect.

12. Omission of date in bill payable after date. Where a bill expressed to be payable at a fixed period after date is issued undated, or where the acceptance of a bill payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the bill shall be payable accordingly.

Provided that (1) where the holder in good faith and by mistake inserts a wrong date, and (2) in every case where a wrong date is inserted, if the bill subsequently comes into the hands of a holder in due course the bill shall not be avoided thereby, but shall operate and be payable as if the date so inserted had been the true date.

13. Ante-dating and post-dating. (1) Where a bill or an acceptance or any indorsement on a bill is dated, the date shall, unless the contrary be proved, be deemed to be the true date of the drawing, acceptance, or indorsement, as the case may be.

(2) A bill is not invalid by reason only that it is ante-dated or post-dated, or that it bears date on a Sunday.

14. Computation of time of payment. Where a bill is not payable on demand the day on which it falls due is determined as follows:

(1) Three days, called days of grace, are, in every case where the bill itself does not otherwise provide, added to the time of payment as fixed by the bill, and the bill is due and payable on the last day of grace: Provided that—

  • (a) When the last day of grace falls on Sunday, Christmas Day, Good Friday, or a day appointed by Royal proclamation as a public fast or thanksgiving day, the bill is, except in the case herein-after provided for, due and payable on the preceding business day;

  • (b) When the last day of grace is a bank holiday (other than Christmas Day or Good Friday) under the Bank Holidays Act, 1871, and Acts amending or extending it, or when the last day of grace is a Sunday, and the second day of grace is a Bank Holiday, the bill is due and payable on the succeeding business day.

(2) Where a bill is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run and by including the day of payment.

(3) Where a bill is payable at a fixed period after sight, the time begins to run from the date of the acceptance if the bill be accepted, and from the date of noting or protest if the bill be noted or protested for non-acceptance, or for non-delivery.

(4) The term “month” in a bill means calendar month.

15. Case of need. The drawer of a bill and any indorser may insert therein the name of a person to whom the holder may resort in case of need, that is to say, in case the bill is dishonoured by non-acceptance or non-payment. Such person is called the referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may think fit.

16. Optional stipulations by drawer or indorser. The drawer of a bill, and any indorser, may insert therein an express stipulation—

(1) negativing or limiting his own liability to the holder.

(2) waiving as regards himself some or all of the holder’s duties.

17. Definition and requisites of acceptance. (1) The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer.

(2) An acceptance is invalid unless it complies with the following conditions, namely:

  • (a) It must be written on the bill and be signed by the drawee. The mere signature of the drawee without additional words is sufficient.

  • (b) It must not express that the drawee will perform his promise by any other means than the payment of money.

18. Time for acceptance. A bill may be accepted—

(1) before it has been signed by the drawer, or while otherwise incomplete:

(2) when it is overdue, or after it has been dishonoured by a previous refusal to accept, or by non-payment:

(3) when a bill payable after sight is dishonoured by non-acceptance, and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of first presentment to the drawee for acceptance.

19. General and qualified acceptances. (1) An acceptance is either

  • (a) general or

  • (b) qualified.

(2) A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn.

In particular an acceptance is qualified which is—

  • (a) conditional, that is to say, which makes payment by the acceptor dependent on the fulfilment of a condition therein stated:

  • (b) partial, that is to say, an acceptance to pay part only of the amount for which the bill is drawn:

  • (c) local, that is to say, an acceptance to pay only at a particular specified place:

An acceptance to pay at a particular place is a general acceptance, unless it expressly states that the bill is to be paid there only and not elsewhere:

  • (d) qualified as to time:

  • (e) the acceptance of some one or more of the drawees, but not of all.

20. Inchoate instruments. (1) Where a simple signature on a blank stamped paper is delivered by the signer in order that it may be converted into a bill, it operates as a prima facie authority to fill it up as a complete bill for any amount the stamp will cover, using the signature for that of the drawer, or the acceptor, or an indorser; and, in like manner, when a bill is wanting in any material particular, the person in possession of it has a prima facie authority to fill up the omission in any way he thinks fit.

(2) In order that any such instrument when completed may be enforceable against any person who became a party thereto prior to its completion, it must be filled up within a reasonable time, and strictly in accordance with the authority given. Reasonable time for this purpose is a question of fact.

Provided that if any such instrument after completion is negotiated to a holder in due course it shall be valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up within a reasonable time and strictly in accordance with the authority given.

21. Delivery. (1) Every contract on a bill, whether it be the drawer’s, the acceptor’s, or an indorser’s, is incomplete and revocable, until delivery of the instrument in order to give effect thereto.

Provided that where an acceptance is written on a bill, and the drawee gives notice to or according to the directions of the person entitled to the bill that he has accepted it, the acceptance then becomes complete and irrevocable.

(2) As between immediate parties, and as regards a remote party other than a holder in due course, the delivery—

  • (a) in order to be effectual must be made either by or under the authority of the party drawing, accepting, or indorsing, as the case may be.

  • (b) may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill.

But if the bill be in the hands of a holder in due course a valid delivery of the bill by all parties prior to him so as to make them liable to him is conclusively presumed.

(3) Where a bill is no longer in the possession of a party who has signed it as drawer, acceptor, or indorser, a valid and unconditional delivery by him is presumed until the contrary is proved.

Capacity and Authority of Parties

22. Capacity of parties. (1) Capacity to incur liability as a party to a bill is co-extensive with capacity to contract.

Provided that nothing in this section shall enable a corporation to make itself liable as drawer, acceptor, or indorser of a bill unless it is competent to it so to do under the law for the time being in force relating to corporations.

(2) Where a bill is drawn or indorsed by an infant, minor, or corporation having no capacity or power to incur liability on a bill, the drawing or indorsement entitles the holder to receive payment of the bill, and to enforce it against any other party thereto.

23. Signature essential to liability. No person is liable as drawer, indorser, or acceptor of a bill who has not signed it as such: Provided that

(1) Where a person signs a bill in a trade or assumed name, he is liable thereon as if he had signed it in his own name:

(2) The signature of the name of a firm is equivalent to the signature by the person so signing of the names of all persons liable as partners in that firm.

24. Forged or unauthorised signature. Subject to the provisions of this Act, where a signature on a bill is forged or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly inoperative, and no right to retain the bill or to give a discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority.

Provided that nothing in this section shall affect the ratification of an unauthorised signature not amounting to a forgery.

25. Procuration signatures. A signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is only bound by such signature if the agent in so signing was acting within the actual limits of his authority.

26. Person signing as agent or in representative capacity. (1)

Where a person signs a bill as drawer, indorser, or acceptor, and adds words to his signature, indicating that he signs for or on behalf of a principal, or in a representative character, he is not personally liable thereon; but the mere addition to his signature of words describing him as an agent, or as filling a representative character, does not exempt him from personal liability.

(2) In determining whether a signature on a bill is that of the principal or that of the agent by whose hand it is written, the construction most favourable to the validity of the instrument shall be adopted.

The Consideration for a Bill

27. Value and holder for value. (1) Valuable consideration for a bill may be constituted by—

  • (a) any consideration sufficient to support a simple contract;

  • (b) an antecedent debt or liability. Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.

(2) Where value has at any time been given for a bill the holder is deemed to be a holder for value as regards the acceptor and all parties to the bill who became parties prior to such time.

(3) Where the holder of a bill has a lien on it arising either from contract or by implication of law, he is deemed to be a holder for value to the extent of the sum for which he has a lien.

28. Accommodation bill or party. (1) An accommodation party to a bill is a person who has signed a bill as drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.

(2) An accommodation party is liable on the bill to a holder for value; and it is immaterial whether, when such holder took the bill, he knew such party to be an accommodation party or not.

29. Holder in due course. (1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions; namely,

  • (a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact:

  • (b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.

(2) In particular, the title of a person who negotiates a bill is defective within the meaning of this Act when he obtained the bill, or the acceptance thereof, by fraud, duress, or force and fear, or other unlawful means, or an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

(3) A holder (whether for value or not), who derives his title to a bill through a holder in due course, and who is not himself a party to any fraud or illegality affecting it, has all the rights of that holder in due course as regards the acceptor and all parties to the bill prior to that holder.

30. Presumption of value and good faith. (1) Every party whose signature appears on a bill is primâ facie deemed to have become a party thereto for value.

(2) Every holder of a bill is prima facie deemed to be a holder in due course; but if in an action on a bill it is admitted or proved that the acceptance, issue, or subsequent negotiation of the bill is affected with fraud, duress, or force and fear, or illegality, the burden of proof is shifted, unless and until the holder proves that subsequent to the alleged fraud or illegality, value has in good faith been given for the bill.

Negotiation of Bills

31. Negotiation of bill. (1) A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill.

(2) A bill payable to bearer is negotiated by delivery.

(3) A bill payable to order is negotiated by the indorsement of the holder completed by delivery.

(4) Where the holder of a bill payable to his order transfers it for value without indorsing it, the transfer gives the transferee such title as the transferor had in the bill, and the transferee in addition acquires the right to have the indorsement of the transferor.

(5) Where any person is under obligation to indorse a bill in a representative capacity, he may indorse the bill in such terms as to negative personal liability.

32. Requisites of a valid indorsement. An indorsement in order to operate as a negotiation must comply with the following conditions, namely—

(1) It must be written on the bill itself and be signed by the indorser. The simple signature of the indorser on the bill, without additional words, is sufficient.

An indorsement written on an allonge, or on a “copy” of a bill issued or negotiated in a country where “copies” are recognised, is deemed to be written on the bill itself.

(2) It must be an indorsement of the entire bill. A partial indorsement, that is to say, an indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the bill to two or more indorsees severally, does not operate as a negotiation of the bill.

(3) Where a bill is payable to the order of two or more payees or indorsees who are not partners all must indorse, unless the one indorsing has authority to indorse for the others.

(4) Where, in a bill payable to order, the payee or indorsee is wrongly designated, or his name is mis-spelt, he may indorse the bill as therein described, adding, if he think fit, his proper signature.

(5) Where there are two or more indorsements on a bill, each indorsement is deemed to have been made in the order in which it appears on the bill, until the contrary is proved.

(6) An indorsement may be made in blank or special. It may also contain terms making it restrictive.

33. Conditional indorsement. Where a bill purports to be indorsed conditionally the condition may be disregarded by the payer, and payment to the indorsee is valid whether the condition has been fulfiled or not.

34. Indorsement in blank and special indorsement. (1) An indorsement in blank specifies no indorsee, and a bill so indorsed becomes payable to bearer.

(2) A special indorsement specifies the person to whom, or to whose order, the bill is to be payable.

(3) The provisions of this Act relating to a payee apply with the necessary modifications to an indorsee under a special indorsement.

(4) When a bill has been indorsed in blank, any holder may convert the blank indorsement into a special indorsement by writing above the indorsee’s signature a direction to pay the bill to or to the order of himself or some other person.

35. Restrictive indorsement. (1) An indorsement is restrictive which prohibits the further negotiation of the bill or which expresses that it is a mere authority to deal with the bill as thereby directed and not a transfer of the ownership thereof, as, for example, if a bill be indorsed “Pay D. only,” or “Pay D. for the account of X.,” or “Pay D. or order for collection.”

(2) A restrictive indorsement gives the indorsee the right to receive payment of the bill and to sue any party thereto that his indorser could have sued, but gives him no power to transfer his rights as indorsee unless it expressly authorise him to do so.

(3) Where a restrictive indorsement authorises further transfer, all subsequent indorsees take the bill with the same rights and subject to the same liabilities as the first indorsee under the restrictive indorsement.

36. Negotiation of overdue or dishonoured bill. (1) Where a bill is negotiable in its origin it continues to be negotiable until it has been

  • (a) restrictively indorsed or

  • (b) discharged by payment or otherwise.

(2) Where an overdue bill is negotiated, it can only be negotiated subject to any defect of title affecting it at its maturity, and thenceforward no person who takes it can acquire or give a better title than that which the person from whom he took it had.

(3) A bill payable on demand is deemed to be overdue within the meaning and for the purposes of this section, when it appears on the face of it to have been in circulation for an unreasonable length of time. What is an unreasonable length of time for this purpose is a question of fact.

(4) Except where an indorsement bears date after the maturity of the bill, every negotiation is prima facie deemed to have been effected before the bill was overdue.

(5) Where a bill which is not overdue has been dishonoured any person who takes it with notice of the dishonour takes it subject to any defect of title attaching thereto at the time of dishonour, but nothing in this subsection shall affect the rights of a holder in due course.

37. Negotiation of bill to party already liable thereon. Where a bill is negotiated back to the drawer, or to a prior indorser or to the acceptor, such party may, subject to the provisions of this Act, re-issue and further negotiate the bill, but he is not entitled to enforce payment of the bill against any intervening party to whom he was previously liable.

38. Rights of the holder. The rights and powers of the holder of a bill are as follows:

(1) He may sue on the bill in his own name:

(2) Where he is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill:

(3) Where his title is defective:

  • (a) if he negotiates the bill to a holder in due course, that holder obtains a good and complete title to the bill, and

  • (b) if he obtains payment of the bill the person who pays him in due course gets a valid discharge for the bill.

General Duties of the Holder

39. When presentment for acceptance is necessary. (1) Where a bill is payable after sight, presentment for acceptance is necessary in order to fix the maturity of the instrument.

(2) Where a bill expressly stipulates that it shall be presented for acceptance, or where a bill is drawn payable elsewhere than at the residence or place of business of the drawee, it must be presented for acceptance before it can be presented for payment.

(3) In no other case is presentment for acceptance necessary in order to render liable any party to the bill.

(4) Where the holder of a bill, drawn payable elsewhere than at the place of business or residence of the drawee, has not time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused by presenting the bill for acceptance before presenting it for payment is excused, and does not discharge the drawer and indorsers.

40. Time for presenting bill payable after sight. (1) Subject to the provisions of this Act, when a bill payable after sight is negotiated, the holder must either present it for acceptance or negotiate it within a reasonable time.

(2) If he does not do so, the drawer and all indorsers prior to that holder are discharged.

(3) In determining what is a reasonable time within the meaning of this section, regard shall be had to the nature of the bill, the usage of trade with respect to similar bills, and the facts of the particular case.

41. Rules as to presentment for acceptance, and excuses for non-presentment. (1) A bill is duly presented for acceptance which is presented in accordance with the following rules:

  • (a) The presentment must be made by or on behalf of the holder to the drawee or to some person authorised to accept or refuse acceptance on his behalf at a reasonable hour on a business day and before the bill is overdue:

  • (b) Where a bill is addressed to two or more drawees, who are not partners, presentment must be made to them all, unless one has authority to accept for all, then presentment may be made to him only:

  • (c) Where the drawee is dead, presentment may be made to his personal representative:

  • (d) Where the drawee is bankrupt, presentment may be made to him or to his trustee:

  • (e) Where authorised by agreement or usage, a presentment through the post office is sufficient.

(2) Presentment in accordance with these rules is excused, and a bill may be treated as dishonoured by non-acceptance—

  • (a) Where the drawee is dead or bankrupt, or is a fictitious person or a person not having capacity to contract by bill:

  • (b) Where, after the exercise of reasonable diligence, such presentment cannot be effected:

  • (c) Where, although the presentment has been irregular, acceptance has been refused on some other ground.

(3) The fact that the holder has reason to believe that the bill, on presentment, will be dishonoured does not excuse presentment.

42. Non-acceptance. When a bill is duly presented for acceptance and is not accepted within the customary time, the person presenting it must treat it as dishonoured by non-acceptance. If he does not, the holder shall lose his right of recourse against the drawer and indorsers.

43. Dishonour by non-acceptance and its consequences. (1) A bill is dishonoured by non-acceptance—

  • (a) when it is duly presented for acceptance, and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or

  • (b) when presentment for acceptance is excused and the bill is not accepted.

(2) Subject to the provisions of this Act when a bill is dishonoured by non-acceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder, and no presentment for payment is necessary.

44. Duties as to qualified acceptances. (1) The holder of a bill may refuse to take a qualified acceptance, and if he does not obtain an unqualified acceptance may treat the bill as dishonoured by non-acceptance.

(2) Where a qualified acceptance is taken, and the drawer or an indorser has not expressly or impliedly authorised the holder to take a qualified acceptance, or does not subsequently assent thereto, such drawer or indorser is discharged from his liability on the bill.

The provisions of this subsection do not apply to a partial acceptance, whereof due notice has been given. Where a foreign bill has been accepted as to part, it must be protested as to the balance.

(3) When the drawer or indorser of a bill receives notice of a qualified acceptance, and does not within reasonable time express his dissent to the holder he shall be deemed to have assented thereto.

45. Rules as to presentment for payment. Subject to the provisions of this Act a bill must be duly presented for payment. If it be not so presented the drawer and indorsers shall be discharged.

A bill is duly presented for payment which is presented in accordance with the following rules—

(1) Where the bill is not payable on demand, presentment must be made on the day it falls due.

(2) Where the bill is payable on demand, then, subject to the provisions of the Act, presentment must be made within a reasonable time after its issue in order to render the drawer liable, and within a reasonable time after its indorsement, in order to render the indorser liable.

In determining what is a reasonable time, regard shall be had to the nature of the bill, the usage of trade with regard to similar bills, and the facts of the particular case.

(3) Presentment must be made by the holder or by some person authorised to receive payment on his behalf at a reasonable hour on a business day, at the proper place as herein-after defined, either to the person designated by the bill as payer, or to some person authorised to pay or refuse payment on his behalf if with the exercise of reasonable diligence such person can there be found.

(4) A bill is presented at the proper place—

  • (a) where a place of payment is specified in the bill and the bill is there presented.

  • (b) where no place of payment is specified, but the address of the drawee or acceptor is given in the bill, and the bill is there presented.

  • (c) where no place of payment is specified and no address given, and the bill is presented at the drawee’s or acceptor’s place of business if known, and if not, at his ordinary residence if known.

  • (d) in any other case if presented to the drawee or acceptor wherever he can be found, or if presented at his last known place of business or residence.

(5) Where a bill is presented at the proper place, and after the exercise of reasonable diligence no person authorised to pay or refuse payment can be found there, no further presentment to the drawee or acceptor is required.

(6) Where a bill is drawn upon, or accepted by two or more persons who are not partners, and no place of payment is specified, presentment must be made to them all.

(7) Where the drawee or acceptor of a bill is dead, and no place of payment is specified, presentment must be made to a personal representative, if such there be, and with the exercise of reasonable diligence he can be found.

(8) Where authorised by agreement or usage a presentment through the post office is sufficient.

46. Excuses for delay or non-presentment for payment. (1) Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate presentment must be made with reasonable diligence.

(2) Presentment for payment is dispensed with—

  • (a) where, after the exercise of reasonable diligence presentment, as required by this Act, cannot be effected.

The fact that the holder has reason to believe that the bill will, on presentment, be dishonoured, does not dispense with the necessity for presentment.

  • (b) where the drawee is a fictitious person.

  • (c) as regards the drawer where the drawee or acceptor is not bound as between himself and the drawer, to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid if presented.

  • (d) as regards an indorser, where the bill was accepted or made for the accommodation of that indorser, and he has no reason to expect that the bill would be paid if presented.

  • (e) by waiver of presentment, express or implied.

47. Dishonour by non-payment. (1) A bill is dishonoured by non-payment—

  • (a) when it is duly presented for payment and payment is refused or cannot be obtained, or

  • (b) when presentment is excused and the bill is overdue and unpaid.

(2) Subject to the provisions of this Act, when a bill is dishonoured by non-payment, an immediate right of recourse against the drawer and indorsers accrues to the holder.

48. Notice of dishonour and effect of non-notice. Subject to the provisions of this Act, when a bill has been dishonoured by non-acceptance or by non-payment, notice of dishonour must be given to the drawer and each indorser, and any drawer or indorser to whom such notice is not given is discharged: Provided that—

(1) Where a bill is dishonoured by non-acceptance, and notice of dishonour is not given, the rights of a holder in due course, subsequent to the omission, shall not be prejudiced by the omission.

(2) Where a bill is dishonoured by non-acceptance, and due notice of dishonour is given, it shall not be necessary to give notice of a subsequent dishonour by non-payment unless the bill shall in the meantime have been accepted.

49. Rules as to notice of dishonour. Notice of dishonour in order to be valid and effectual must be given in accordance with the following rules—

(1) The notice must be given by or on behalf of the holder, or by or on behalf of an indorser who, at the time of giving it, is himself liable on the bill.

(2) Notice of dishonour may be given by an agent either in his own name, or in the name of any party entitled to give notice whether that party be his principal or not.

(3) Where the notice is given by or on behalf of the holder, it enures for the benefit of all subsequent holders and all prior indorsers who have a right of recourse against the party to whom it is given.

(4) Where notice is given by or on behalf of an indorser entitled to give notice as herein-before provided, it enures for the benefit of the holder and all indorsers subsequent to the party to whom notice is given.

(5) The notice may be given in writing or by personal communication, and may be given in any terms which sufficiently identify the bill, and intimate that the bill has been dishonoured by non-acceptance or non-payment.

(6) The return of a dishonoured bill to the drawer or an indorser is, in point of form, deemed a sufficient notice of dishonour.

(7) A written notice need not be signed, and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the bill shall not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.

(8) Where notice of dishonour is required to be given to any person, it may be given either to the party himself, or to his agent in that behalf.

(9) Where the drawer or indorser is dead, and the party giving notice knows it, the notice must be given to a personal representative if such there be, and with the exercise of reasonable diligence he can be found.

(10) Where the drawer or indorser is bankrupt, notice may be given either to the party himself or to the trustee.

(11) Where there are two or more drawers or indorsers who are not partners, notice must be given to each of them, unless one of them has authority to receive such notice for the others.

(12) The notice may be given as soon as the bill is dishonoured and must be given within a reasonable time thereafter.

In the absence of special circumstances notice is not deemed to have been given within a reasonable time, unless—

  • (a) where the person giving and the person to receive notice reside in the same place, the notice is given or sent off in time to reach the latter on the day after the dishonour of the bill.

  • (b) where the person giving and the person to receive notice reside in different places, the notice is sent off on the day after the dishonour of the bill, if there be a post at a convenient hour on that day, and if there be no post on that day then by the next post thereafter.

(13) Where a bill when dishonoured is in the hands of an agent, he may either himself give notice to the parties liable on the bill, or he may give notice to his principal. If he give notice to his principal, he must do so within the same time as if he were the holder, and the principal upon receipt of such notice has himself the same time for giving notice as if the agent had been an independent holder.

(14) Where a party to a bill receives due notice of dishonour, he has after the receipt of such notice the same period of time for giving notice to antecedent parties that the holder has after the dishonour.

(15) Where a notice of dishonour is duly addressed and posted, the sender is deemed to have given due notice of dishonour, notwithstanding any miscarriage by the post office.

50. Excuses for non-notice and delay. (1) Delay in giving notice of dishonour is excused where the delay is caused by circumstances beyond the control of the party giving notice, and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate the notice must be given with reasonable diligence.

(2) Notice of dishonour is dispensed with—

  • (a) when, after the exercise of reasonable diligence, notice as required by this Act cannot be given to or does not reach the drawer or indorser sought to be charged:

  • (b) by waiver express or implied. Notice of dishonour may be waived before the time of giving notice has arrived, or after the omission to give due notice:

  • (c) as regards the drawer in the following cases, namely, (i) where drawer and drawee are the same person, (ii) where the drawee is a fictitious person or a person not having capacity to contract, (iii) where the drawer is the person to whom the bill is presented for payment, (iv) where the drawee or acceptor is as between himself and the drawer under no obligation to accept or pay the bill, (v) where the drawer has countermanded payment:

  • (d) as regards the indorser in the following cases, namely, (i) where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of the fact at the time he indorsed the bill, (ii) where the indorser is the person to whom the bill is presented for payment, (iii) where the bill was accepted or made for his accommodation.

51. Noting or protest of bill. (1) Where an inland bill has been dishonoured it may, if the holder think fit, be noted for non-acceptance or non-payment, as the case may be; but it shall not be necessary to note or protest any such bill in order to preserve the recourse against the drawer or indorser.

(2) Where a foreign bill, appearing on the face of it to be such, has been dishonoured by non-acceptance it must be duly protested for non-acceptance, and where such a bill, which has not been previously dishonoured by non-acceptance, is dishonoured by non-payment it must be duly protested for non-payment. If it be not so protested the drawer and indorsers are discharged. Where a bill does not appear on the face of it to be a foreign bill, protest thereof in case of dishonour is unnecessary.

(3) A bill which has been protested for non-acceptance may be subsequently protested for non-payment.

(4) Subject to the provisions of this Act, when a bill is noted or protested [it may be noted on the day of its dishonour and must be noted not later than the next succeeding business day]. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting.

(5) Where the acceptor of a bill becomes bankrupt or insolvent or suspends payment before it matures, the holder may cause the bill to be protested for better security against the drawer and indorsers.

(6) A bill must be protested at the place where it is dishonoured: Provided that—

  • (a) when a bill is presented through the post office, and returned by post dishonoured, it may be protested at the place to which it is returned and on the day of its return if received during business hours, and if not received during business hours, then not later than the next business day:

  • (b) when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonoured by non-acceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary.

(7) A protest must contain a copy of the bill, and must be signed by the notary making it, and must specify—

  • (a) the person at whose request the bill is protested:

  • (b) the place and date of protest, the cause or reason for protesting the bill, the demand made, and the answer given, if any, or the fact that the drawee or acceptor could not be found.

(8) Where a bill is lost or destroyed, or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof.

(9) Protest is dispensed with by any circumstances which would dispense with notice of dishonour. Delay in noting or protesting is excused when the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate the bill must be noted or protested with reasonable diligence.

52. Duties of holder as regards drawee or acceptor. (1) When a bill is accepted generally presentment for payment is not necessary in order to render the acceptor liable.

(2) When by the terms of a qualified acceptance presentment for payment is required, the acceptor, in the absence of an express stipulation to that effect, is not discharged by the omission to present the bill for payment on the day that it matures.

(3) In order to render the acceptor of a bill liable it is not necessary to protest it, or that notice of dishonour should be given to him.

(4) Where the holder of a bill presents it for payment, he shall exhibit the bill to the person from whom he demands payment, and when a bill is paid the holder shall forthwith deliver it up to the party paying it.

Liabilities of Parties

53. Funds in hands of drawee. (1) A bill, of itself, does not operate as an assignment of funds in the hands of the drawee available for the payment thereof, and the drawee of a bill who does not accept as required by this Act is not liable on the instrument. This subsection shall not extend to Scotland.

(2) (Application to Scotland.)

54. Liability of acceptor. The acceptor of a bill, by accepting it—

(1) Engages that he will pay it according to the tenour of his acceptance:

(2) Is precluded from denying to a holder in due course:

  • (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill;

  • (b) In the case of a bill payable to drawer’s order, the then capacity of the drawer to indorse, but not the genuineness or validity of his indorsement;

  • (c) In the case of a bill payable to the order of a third person, the existence of the payee and his then capacity to indorse, but not the genuineness or validity of his indorsement.

55. Liability of drawer or indorser. (1) The drawer of a bill by drawing it—

  • (a) Engages that on due presentment it shall be accepted and paid according to its tenor, and that if it be dishonoured he will compensate the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour be duly taken;

  • (b) Is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse.

(2) The indorser of a bill by indorsing it—

  • (a) engages that on due presentment it shall be accepted and paid according to its tenor, and that if it be dishonoured he will compensate the holder or a subsequent indorser who is compelled to pay it, provided that the requisite proceedings on dishonour be duly taken;

  • (b) is precluded from denying to a holder in due course the genuineness and regularity in all respects of the drawer’s signature and all previous indorsements;

  • (c) is precluded from denying to his immediate or a subsequent indorsee that the bill was at the time of his indorsement a valid and subsisting bill, and that he had then a good title thereto.

56. Stranger signing bill liable as indorser. Where a person signs a bill otherwise than as drawer or acceptor, he thereby incurs the liabilities of an indorser to a holder in due course.

57. Measure of damages against parties to dishonoured bill. Where a bill is dishonoured, the measure of damages, which shall be deemed to be liquidated damages, shall be as follows:

(1) The holder may recover from any party liable on the bill, and the drawer who has been compelled to pay the bill may recover from the acceptor, and an indorser who has been compelled to pay the bill may recover from the acceptor or from the drawer, or from a prior indorser—

  • (a) the amount of the bill:

  • (b) interest thereon from the time of presentment for payment if the bill is payable on demand, and from the maturity of the bill in any other case:

  • (c) the expenses of noting, or, when protest is necessary, and the protest has been extended, the expenses of protest.

(2) In the case of a bill which has been dishonoured abroad, in lieu of the above damages, the holder may recover from the drawer or an indorser, and the drawer or an indorser who has been compelled to pay the bill may recover from any party liable to him, the amount of the re-exchange with interest thereon until the time of payment.

(3) Where by this Act interest may be recovered as damages, such interest may, if justice require it, be withheld wholly or in part, and where a bill is expressed to be payable with interest at a given rate, interest as damages may or may not be given at the same rate as interest proper.

58. Transferor by delivery and transferee. (1) Where the holder of a bill payable to bearer negotiates it by delivery without indorsing it he is called a “transferor by delivery.”

(2) A transferor by delivery is not liable on the instrument.

(3) A transferor by delivery who negotiates a bill thereby warrants to his immediate transferee being a holder for value that the bill is what it purports to be, that he has a right to transfer it, and that at the time of transfer he is not aware of any fact which renders it valueless.

Discharge of Bill

59. Payment in due course. (1) A bill is discharged by payment in due course by or on behalf of the drawee or acceptor.

“Payment in due course” means payment made at or after the maturity of the bill to the holder thereof in good faith and without notice that his title to the bill is defective.

(2) Subject to the provisions herein-after contained, when a bill is paid by the drawer or an indorser it is not discharged; but

  • (a) Where a bill payable to, or to the order of, a third party is paid by the drawer, the drawer may enforce payment thereof against the acceptor, but may not re-issue the bill.

  • (b) Where a bill is paid by an indorser, or where a bill payable to drawer’s order is paid by the drawer, the party paying it is remitted to his former rights as regards the acceptor or antecedent parties, and he may, if he thinks fit, strike out his own subsequent indorsements, and again negotiate the bill.

(3) Where an accommodation bill is paid in due course by the party accommodated the bill is discharged.

60. Banker paying demand draft whereon indorsement is forged. When a bill payable to order on demand is drawn on a banker, and the banker on whom it is drawn pays the bill in good faith and in the ordinary course of business, it is not incumbent on the banker to show that the indorsement of the payee or any subsequent indorsement was made by or under the authority of the person whose indorsement it purports to be, and the banker is deemed to have paid the bill in due course, although such indorsement has been forged or made without authority.

61. Acceptor the holder at maturity. When the acceptor of a bill is or becomes the holder of it at or after its maturity, in his own right, the bill is discharged.

62. Express waiver. (1) When the holder of a bill at or after its maturity absolutely and unconditionally renounces his rights against the acceptor the bill is discharged.

The renunciation must be in writing, unless the bill is delivered up to the acceptor.

(2) The liabilities of any party to a bill may in like manner be renounced by the holder before, at, or after its maturity; but nothing in this section shall affect the rights of a holder in due course without notice of the renunciation.

63. Cancellation. (1) Where a bill is intentionally cancelled by the holder or his agent, and the cancellation is apparent thereon, the bill is discharged.

(2) In like manner any party liable on a bill may be discharged by the intentional cancellation of his signature by the holder or his agent. In such case any indorser who would have had a right of recourse against the party whose signature is cancelled is also discharged.

(3) A cancellation made unintentionally, or under a mistake, or without the authority of the holder is inoperative; but where a bill or any signature thereon appears to have been cancelled the burden of proof lies on the party who alleges that the cancellation was made unintentionally, or under a mistake, or without authority.

64. Alteration of bill. (1) Where a bill or acceptance is materially altered without the assent of all parties liable on the bill, the bill is avoided except as against a party who has himself made, authorised, or assented to the alteration, and subsequent indorsers. Provided that,

Where a bill has been materially altered, but the alteration is not apparent, and the bill is in the hands of a holder in due course, such holder may avail himself of the bill as if it had not been altered, and may enforce payment of it according to its original tenour.

(2) In particular the following alterations are material, namely, any alteration of the date, the sum payable, the time of payment, the place of payment, and, where a bill has been accepted generally, the addition of a place of payment without the acceptor’s assent.

Acceptance and Payment for Honour

65. Acceptance for honour suprà protest. (1) Where a bill of exchange has been protested for dishonour by non-acceptance, or protested for better security, and is not overdue, any person, not being a party already liable thereon, may, with the consent of the holder, intervene and accept the bill suprà protest for the honour of any party liable thereon, or for the honour of the person for whose account the bill is drawn.

(2) A bill may be accepted for honour for part only of the sum for which it is drawn.

(3) An acceptance for honour suprà protest in order to be valid must—

  • (a) be written on the bill, and indicate that it is an acceptance for honour:

  • (b) be signed by the acceptor for honour.

(4) Where an acceptance for honour does not expressly state for whose honour it is made it is deemed to be an acceptance for the honour of the drawer.

(5) Where a bill payable after sight is accepted for honour, its maturity is calculated from the date of the noting for non-acceptance, and not from the date of the acceptance for honour.

66. Liability of acceptor for honour. (1) The acceptor for honour of a bill by accepting it engages that he will, on due presentment, pay the bill according to the tenor of his acceptance, if it is not paid by the drawee, provided it has been duly presented for payment, and protested for non-payment, and that he receives notice of these facts.

(2) The acceptor for honour is liable to the holder and to all parties to the bill subsequent to the party for whose honour he has accepted.

67. Presentment to acceptor for honour. (1) Where a dishonoured bill has been accepted for honour suprà protest, or contains a reference in case of need, it must be protested for non-payment before it is presented for payment to the acceptor for honour, or referee in case of need.

(2) Where the address of the acceptor for honour is in the same place where the bill is protested for non-payment, the bill must be presented to him not later than the day following its maturity; and where the address of the acceptor for honour is in some place other than the place where it was protested for non-payment, the bill must be forwarded not later than the day following its maturity for presentment to him.

(3) Delay in presentment or non-presentment is excused by any circumstance which would excuse delay in presentment for payment or non-presentment for payment.

(4) When a bill of exchange is dishonoured by the acceptor for honour it must be protested for non-payment by him.

68. Payment for honour suprà protest. (1) Where a bill has been protested for non-payment, any person may intervene and pay it suprà protest for the honour of any party liable thereon, or for the honour of the person for whose account the bill is drawn.

(2) Where two or more persons offer to pay a bill for the honour of different parties, the person whose payment will discharge most parties to the bill shall have the preference.

(3) Payment for honour suprà protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honour which may be appended to the protest or form an extension of it.

(4) The notarial act of honour must be founded on a declaration made by the payer for honour, or his agent in that behalf, declaring his intention to pay the bill for honour, and for whose honour he pays.

(5) Where a bill has been paid for honour, all parties subsequent to the party for whose honour it is paid are discharged, but the payer for honour is subrogated for, and succeeds to both the rights and duties of, the holder as regards the party for whose honour he pays, and all parties liable to that party.

(6) The payer for honour on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonour is entitled to receive both the bill itself and the protest. If the holder do not on demand deliver them up he shall be liable to the payer for honour in damages.

(7) Where the holder of a bill refuses to receive payment suprà protest he shall lose his right of recourse against any party who would have been discharged by such payment.

Lost Instruments

69. Holder’s right to duplicate of lost bill. Where a bill has been lost before it is overdue the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer if required to indemnify him against all persons whatever in case the bill alleged to have been lost shall be found again.

If the drawer on request as aforesaid refuses to give such duplicate bill he may be compelled to do so.

70. Action on lost bill. In any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up, provided an indemnity be given to the satisfaction of the court or judge against the claims of any other person upon the instrument in question.

Bill in a Set

71. Rules as to sets. (1) Where a bill is drawn in a set, each part of the set being numbered, and containing a reference to the other parts the whole of the parts constitute one bill.

(2) Where the holder of a set indorses two or more parts to different persons, he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed as if the said parts were separate bills.

(3) 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 nothing in this subsection shall affect the rights of a person who in due course accepts or pays the part first presented to him.

(4) 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.

(5) 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 thereof.

(6) 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.

Conflict of Laws

72. Rules where laws conflict. Where a bill drawn in one country is negotiated, accepted, or payable in another, the rights, duties, and liabilities of the parties thereto are determined as follows:

(1) The validity of a bill as regards requisites in form is determined by the law of the place of issue, and the validity as regards requisites in form of the supervening contracts, such as acceptance, or indorsement, or acceptance suprà protest, is determined by the law of the place where such contract was made. Provided that,

  • (a) Where a bill is issued out of the United Kingdom it is not invalid by reason only that it is not stamped in accordance with the law of the place of issue:

  • (b) Where a bill, issued out of the United Kingdom, conforms, as regards requisites in form, to the law of the United Kingdom, it may, for the purpose of enforcing payment thereof, be treated as valid as between all persons who negotiate, hold, or become parties to it in the United Kingdom.

(2) Subject to the provisions of this Act, the interpretation of the drawing, indorsement, acceptance, or acceptance suprà protest of a bill, is determined by the law of the place where such contract is made.

Provided that where an inland bill is indorsed in a foreign country the indorsement shall as regards the payer be interpreted according to the law of the United Kingdom.

(3) The duties of the holder with respect to presentment for acceptance or payment and the necessity for or sufficiency of a protest or notice of dishonour, or otherwise, are determined by the law of the place where the act is done or the bill is dishonoured.

(4) Where a bill is drawn out of but payable in the United Kingdom and the sum payable is not expressed in the currency of the United Kingdom the amount shall, in the absence of some express stipulation, be calculated according to the rate of exchange for sight drafts at the place of payment on the day the bill is payable.

(5) Where a bill is drawn in one country and is payable in another, the due date thereof is determined according to the law of the place where it is payable.

Part III

Cheques on a Banker

73. Cheque defined. A cheque is a bill of exchange drawn on a banker payable on demand.

Except as otherwise provided in this Part, the provisions of this Act applicable to a bill of exchange payable on demand apply to a cheque.

74. Presentment of cheque for payment. Subject to the provisions of this Act—

(1) Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or the person on whose account it is drawn had the right at the time of such presentment as between him and the banker to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of such banker to a larger amount than he would have been had such cheque been paid.

(2) In determining what is a reasonable time regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case.

(3) The holder of such cheque as to which such drawer or person is discharged shall be a creditor, in lieu of such drawer or person, of such banker to the extent of such discharge, and entitled to recover the amount from him.

74A. Presentment of cheque for payment: alternative place of presentment. Where the banker on whom a cheque is drawn—

  • (a) has by notice published in the London, Edinburgh and Belfast Gazettes specified an address at which cheques drawn on him may be presented, and

  • (b) has not by notice so published cancelled the specification of that address, the cheque is also presented at the proper place if it is presented there.

74B. Presentment of cheque for payment: alternative means of presentment by banker. (1) A banker may present a cheque for payment to the banker on whom it is drawn by notifying him of its essential features by electronic means or otherwise, instead of by presenting the cheque itself.

(2) If a cheque is presented for payment under this section, presentment need not be made at the proper place or at a reasonable hour on a business day.

(3) If, before the close of business on the next business day following presentment of a cheque under this section, the banker on whom the cheque is drawn requests the banker by whom the cheque was presented to present the cheque itself—

  • (a) the presentment under this section shall be disregarded, and

  • (b) this section shall not apply in relation to the subsequent presentment of the cheque.

(4) A request under subsection (3) above for the presentment of a cheque shall not constitute dishonour of the cheque by non-payment.

(5) Where presentment of a cheque is made under this section, the banker who presented the cheque and the banker on whom it is drawn shall be subject to the same duties in relation to the collection and payment of the cheque as if the cheque itself had been presented for payment.

(6) For the purposes of this section, the essential features of a cheque are—

  • (a) the serial number of the cheque,

  • (b) the code which identifies the banker on whom the cheque is drawn,

  • (c) the account number of the drawer of the cheque, and

  • (d) the amount of the cheque as entered by the drawer of the cheque.

74C. Cheques presented for payment under section 74B: disapplication of section 52(4). Section 52(4) above—

  • (a) so far as relating to presenting a bill for payment, shall not apply to presenting a cheque for payment under section 74B above, and

  • (b) so far as relating to a bill which is paid, shall not apply to a cheque which is paid following presentment under that section.

75. Revocation of banker’s authority. The duty and authority of a banker to pay a cheque drawn on him by his customer are determined by—

  • (1) countermand of payment:

  • (2) notice of the customer’s death.

Crossed Cheques

76. General and special crossings defined. (1) Where a cheque bears across its face an addition of—

  • (a) the words “and company” or any abbreviation thereof between two parallel transverse lines, either with or without the words “not negotiable”; or

  • (b) two parallel transverse lines simply, either with or without the words “not negotiable”;

that addition constitutes a crossing, and the cheque is crossed generally.

(2) Where a cheque bears across its face an addition of the name of a banker, either with or without the words “not negotiable,” that addition constitutes a crossing, and the cheque is crossed specially and to that banker.

77. Crossing by drawer or after issue. (1) A cheque may be crossed generally or specially by the drawer.

(2) Where a cheque is uncrossed, the holder may cross it generally or specially.

(3) Where a cheque is crossed generally the holder may cross it specially.

(4) Where a cheque is crossed generally or specially, the holder may add the words “not negotiable.”

(5) Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker for collection.

(6) Where an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he may cross it specially to himself.

78. Crossing a material part of cheque. A crossing authorised by this Act is a material part of the cheque; it shall not be lawful for any person to obliterate or, except as authorised by this Act, to add to or alter the crossing.

79. Duties of banker as to crossed cheques. (1) Where a cheque is crossed specially to more than one banker except when crossed to an agent for collection being a banker, the banker on whom it is drawn shall refuse payment thereof.

(2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays the same, or pays a cheque crossed generally otherwise than to a banker, or if crossed specially otherwise than to the banker to whom it is crossed, or his agent for collection being a banker, he is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.

Provided that where a cheque is presented for payment which does not at the time of presentment appear to be crossed, or to have had a crossing which has been obliterated, or to have been added to or altered otherwise than as authorised by this Act, the banker paying the cheque in good faith and without negligence shall not be responsible or incur any liability, nor shall the payment be questioned by reason of the cheque having been crossed, or of the crossing having been obliterated or having been added to or altered otherwise than as authorised by this Act, and of payment having been made otherwise than to a banker or to the banker to whom the cheque is or was crossed, or to his agent for collection being a banker, as the case may be.

80. Protection to banker and drawer where cheque is crossed.

Where the banker, on whom a crossed cheque (including a cheque which under section 81A below or otherwise is not transferable) is drawn, in good faith and without negligence pays it, if crossed generally, to a banker, and if crossed specially, to the banker to whom it is crossed, or his agent for collection being a banker, the banker paying the cheque, and, if the cheque has come into the hands of the payee, the drawer, shall respectively be entitled to the same rights and be placed in the same position as if payment of the cheque had been made to the true owner thereof.

81. Effect of crossing on holder. Where a person takes a crossed cheque which bears on it the words “not negotiable,” he shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.

81A. Non-transferable cheques. (1) Where a cheque is crossed and bears across its face the words “account payee” or “a/c payee,” either with or without the word “only,” the cheque shall not be transferable, but shall only be valid as between the parties thereto.

(2) A banker is not to be treated for the purposes of section 80 above as having been negligent by reason only of his failure to concern himself with any purported indorsement of a cheque which under subsection (1) above or otherwise is not transferable.

82. Protection to collecting banker. Where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself, and the customer has no title or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment.

Part IV

Promissory Notes

83. Promissory note defined. (1) A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging 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.

(2) An instrument in the form of a note payable to maker’s order is not a note within the meaning of this section unless and until it is indorsed by the maker.

(3) A note is not invalid by reason only that it contains also a pledge of collateral security with authority to sell or dispose thereof.

(4) A note which is, or on the face of it purports to be, both made and payable within the British Islands is an inland note. Any other note is a foreign note.

84. Delivery necessary. A promissory note is inchoate and incomplete until delivery thereof to the payee or bearer.

85. Joint and several notes. (1) A promissory note may be made by two or more makers, and they may be liable thereon jointly, or jointly and severally according to its tenour.

(2) Where a note runs “I promise to pay” and is signed by two or more persons it is deemed to be their joint and several note.

86. Note payable on demand. (1) Where a note payable on demand has been indorsed, it must be presented for payment within a reasonable time of the indorsement. If it be not so presented the indorser is discharged.

(2) In determining what is reasonable time, regard shall be had to the nature of the instrument, the usage of trade, and the facts of the particular case.

(3) Where a note payable on demand is negotiated, it is not deemed to be overdue, for the purpose of affecting the holder with defects of title of which he had no notice, by reason that it appears that a reasonable time for presenting it for payment has elapsed since its issue.

87. Presentment of note for payment. (1) Where a promissory note is in the body of it made payable at a particular place, it must be presented for payment at that place in order to render the maker liable. In any other case, presentment for payment is not necessary in order to render the maker liable.

(2) Presentment for payment is necessary in order to render the indorser of a note liable.

(3) Where a note is in the body of it made payable at a particular place, presentment at that place is necessary in order to render an indorser liable; but when a place of payment is indicated by way of memorandum only, presentment at that place is sufficient to render the indorser liable, but a presentment to the maker elsewhere, if sufficient in other respects, shall also suffice.

88. Liability of maker. The maker of a promissory note by making it—

(1) engages that he will pay it according to its tenour;

(2) is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse.

89. Application of Part II to notes. (1) Subject to the provisions in this part, and except as by this section provided, the provisions of this Act relating to bills of exchange apply, with the necessary modifications, to promissory notes.

(2) In applying those provisions the maker of a note shall be deemed to correspond with the acceptor of a bill, and the first indorser of a note shall be deemed to correspond with the drawer of an accepted bill payable to drawer’s order.

(3) The following provisions as to bills do not apply to notes; namely, provisions relating to

  • (a) presentment for acceptance;

  • (b) acceptance;

  • (c) acceptance suprà protest;

  • (d) bills in a set.

(4) Where a foreign note is dishonoured, protest thereof is unnecessary.

Part V

Supplementary

90. Good faith. A thing is deemed to be done in good faith, within the meaning of this Act, where it is in fact done honestly, whether it is done negligently or not.

91. Signature. (1) Where, by this Act, any instrument or writing is required to be signed by any person it is not necessary that he should sign it with his own hand, but it is sufficient if his signature is written thereon by some other person by or under his authority.

(2) In the case of a corporation, where, by this Act, any instrument or writing is required to be signed, it is sufficient if the instrument or writing be sealed with the corporate seal.

But nothing in this section shall be construed as requiring the bill or note of a corporation to be under seal.

92. Computation of time. Where, by this Act, the time limited for doing any act or thing is less than three days, in reckoning time, nonbusiness days are excluded.

“Non-business days” for the purposes of this Act mean—

  • (a) Saturday, Sunday, Good Friday, Christmas Day:

  • (b) A bank holiday under the Banking and Financial Dealings Act 1971:

  • (c) A day appointed by Royal proclamation as a public fast or thanksgiving day:

  • (d) A day declared by an order under section 2 of the Banking and Financial Dealings Act 1971 to be a nonbusiness day.

Any other day is a business day.

93. When noting equivalent to protest. For the purposes of this Act, where a bill or note is required to be protested within a specified time or before some further proceeding is taken, it is sufficient that the bill has been noted for protest before the expiration of the specified time or the taking of the proceeding; and the formal protest may be extended at any time thereafter as of the date of the noting.

94. Protest when notary not accessible. Where a dishonoured bill or note is authorised or required to be protested, and the services of a notary cannot be obtained at the place where the bill is dishonoured, any householder or substantial resident of the place may, in the presence of two witnesses, give a certificate, signed by them, attesting the dishonour of the bill, and the certificate shall in all respects operate as if it were a formal protest of the bill.

The form given in Schedule I to this Act may be used with necessary modifications, and if used shall be sufficient.

95. Dividend warrants may be crossed. The provisions of this Act as to crossed cheques shall apply to a warrant for payment of dividend.

96. (Rep. by the S.L.R. Act, 1898 (c.22).)

97. Savings. (1) The rules in bankruptcy relating to bills of exchange, promissory notes, and cheques, shall continue to apply thereto notwithstanding anything in this Act contained.

(2) The rules of common law including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to bills of exchange, promissory notes, and cheques.

(3) Nothing in this Act or in any repeal effected thereby shall affect—

  • (a) … any law or enactment for the time being in force relating to the revenue:

  • (b) the provisions of the Companies Act, 1862, or Acts amending it, or any Act relating to joint stock banks or companies:

  • (c) the provisions of any Act relating to or confirming the privileges of the Bank of England or the Bank of Ireland respectively:

  • (d) the validity of any usage relating to dividend warrants, or the indorsements thereof.

98. (Application to Scotland.).

99. Construction with other Acts, etc. Where any Act or document refers to any enactment repealed by this Act, the Act or document shall be construed, and shall operate, as if it referred to the corresponding provisions of this Act.

100. (Application to Scotland.).

Schedules

First Schedule

Section 94

Form of protest which may be used when the services of a notary cannot be obtained.

Know all men that I, A.B. [householder], of __________ in the county of __________ in the United Kingdom, at the request of C.D., there being no notary public available, did on the __________ day of __________ at __________ demand payment [or acceptance] of the bill of exchange hereunder written, from E.F., to which demand he made answer [state answer, if any] wherefore I now, in the presence of G.H. and J.K. do protest the said bill of exchange.

(Signed)

A.B.

G.H. witness

J.K. witness

N.B. The bill itself should be annexed, or a copy of the bill and all that is written thereon should be underwritten.

(Second Schedule Rep. by the S.L.R. Act, 1898 (c.22).)

4 Central Bank Payment and Settlement Services with Respect to Cross-Border and Multi-Currency Transactions

[Excerpt]1

2. SUMMARY AND CONCLUSIONS

2.1 Reflecting their different domestic origins, payments systems within the G-10 countries vary considerably. Some systems complete home-currency large-value funds transfer on a gross, payment-by-payment basis, while other systems rely on net settlement procedures. In some countries, final (i.e. irrevocable and unconditional) transfers can be made in “real time” throughout the business day, while other such transfers might not become final until several hours or possibly a day or more after they are initiated. Each country’s payments system has its own hours of operation, and these hours typically are not synchronised with payments system operating hours in other countries.

2.2 Using these diverse home-currency payments systems to settle cross-border and multi-currency transactions can be cumbersome and may entail considerable risk. For instance, when the hours of operation of two payments systems do not overlap, it is technically impossible to arrange for the simultaneous settlement of both sides of a foreign exchange transaction. Even when operating hours do overlap, local payments arrangements often make it difficult to control and coordinate the timing of payments in several currencies. More generally, differences and uncertainty in the timing of finality in each country present other obstacles to the effective management of the risks that arise in cross-border and multi-currency settlements.

2.3 Home-currency payments system hours and arrangements and the timing of finality thus make it difficult, if not impossible, to achieve settlements involving two or more currencies (i.e. multicurrency settlements) in which final transfers in one currency occur if and only if final transfers in the other currency or currencies also take place. In the absence of such a delivery-versus-payment (DVP) process for settling obligations in multiple currencies, significant credit risks can be present. These risks include the potential loss of principal (often called “principal” or “Herstatt” risk) that would arise if transfers in one currency become final while associated transfers in another currency did not take place. This is a significant risk to international market participants since the loss of principal in settling, for instance, a foreign exchange trade would dwarf any gain or loss that might have accrued to the counterparties to the original transaction.

2.4 Liquidity risks can also arise in the absence of a multi-currency DVP settlement process. For instance, a fear of incurring principal risk might lead some market participants to refuse to honour their obligations in earlier-settling currencies out of concern that a “suspect” counterparty would not be able to settle its associated obligations in later-settling currencies. The sudden interruption of a significant level of expected payment flows could cause serious liquidity problems for the counterparty and, hence, for other market participants that expect to receive payments from the counterparty. This liquidity risk might also spread to other payments systems in the same or other countries if concern about loss of principal during the settlement process became widespread.

Summary of options

2.5 The Working Group examined a range of central bank payment and settlement services that might reduce these risks and increase the efficiency of cross-border and multi-currency settlements. The options that were considered by the Working Group included: (1) modifying or making available certain home-currency payment and settlement services; (2) extending the operating hours of home-currency large-value funds transfer systems; (3) establishing cross-border operational links between these payment systems; and (4) developing multi-currency payment and settlement services. These central bank service options were evaluated in circumstances where they would facilitate the settlement both of individual transactions and of a stream of transactions between two or more counterparties that have been netted through the operation of a private sector netting scheme.

2.6 Home-currency payment and settlement services. Certain home-currency payment and settlement services might be modified or made available to increase the level of support for international settlements. In particular, where they do not currently exist, settlement accounts and intraday final transfer capabilities could be made available by central banks to settle home-currency obligations related to cross-border and multi-currency transactions. An intraday final transfer capability is defined as the ability to initiate—and to receive timely confirmation of—transfers between accounts at the central bank of issue that become final within a brief period of time. It is important to recognise that the availability of these services would not be sufficient to permit the simultaneous settlement of obligations in all currencies. Hence these home-currency services could not, per se, eliminate the credit and liquidity risks that exist in the absence of multi-currency DVP capabilities.

2.7 Recognising that they cannot eliminate the risks associated with non-DVP settlement, intraday final transfers and settlement accounts nonetheless significantly improve the ability of market participants to manage and control these and other settlement risks. Accurate information about when obligations in each currency are finally discharged would enable individual institutions and clearing houses to quantify and control more precisely and efficiently than they can at present the level and duration of exposures that may be incurred in the process of settling both individual and netted transactions in two or more currencies. It is apparent that the capability in each country’s domestic large-value payments system to effect final transfers at any time of the business day between accounts at the central bank of issue is the foundation stone upon which risk reduction measures can be developed in respect of a range of domestic and cross-border transactions.

2.8 Operating hours of home-currency payments systems. The operating hours of home-currency large-value funds transfer systems could be extended to increase the level of support for international settlements. At one end of the range of possibilities, a modest lengthening of the operating hours of an individual payments system would reduce its current gap (or increase its current overlap) with the operating hours of payments systems in other countries. Towards the other end of the spectrum (which, in the extreme, could involve the large-value funds transfer systems in a number of countries operating round-the-clock), a major extension of the hours of several key home-currency payments systems could result in an operational overlap of most major currencies. Combined with the availability of final transfers over those systems, such an overlap could create the technical ability to conduct on the same value date a DVP settlement of all relevant currencies in which counterparties would be assured that payments in one currency would be made if and only if payments in all relevant currencies are made. This would help support the potential elimination of the credit and liquidity risks associated with the current lack of multi-currency DVP capabilities. However, without directly linking payments made over different large-value funds transfer systems, this assurance would have to come from private sector procedures that would use the available home-currency payment and settlement services during the extended hours of operation.

2.9 Cross-border links between payments systems. Another possible option might be the establishment of bilateral or multilateral cross-border links between large-value funds transfer systems in conjunction, where necessary, with an extension of their operating hours to increase the level of support for international settlements. In particular, direct operational and informational links could be created that would give participating central banks the joint capability to monitor, control and execute simultaneously final transfers over their respective home-currency payments systems. With such cross-border connections, central banks could directly provide the private sector with DVP settlement services for currencies with overlapping payments system operating hours.

2.10 Multi-currency payment and settlement services. Another possible option might involve the joint offering of multi-currency payment and settlement services. Multi-currency accounts and settlement facilities might be provided by the central banks of issue through a “common agent”. Specifically, a central bank controlled common agent could accept deposits in multiple currencies and facilitate final transfers between these accounts. A variant of this arrangement would involve one or more central banks acting as the common agent in providing multi-currency services. In both cases, an important issue is whether arrangements would be in place to provide assurances that sufficient liquidity would be available to complete settlement in the relevant currencies.

2.11 The purpose of jointly offering multi-currency services would be similar to that of creating an overlap in the operating hours (with or without direct operational and informational links) of the major large-value funds transfer systems: to provide the private sector with the technical ability to achieve DVP in the settlement of multi-currency obligations. With multi-currency services this would be accomplished by effecting settlement over operational accounts in each currency held either at the common agent or, in the case of the variant discussed above, at one or more individual central banks.

5 Settlement Risk in Foreign Exchange Transactions

[Excerpt]1

1. EXECUTIVE SUMMARY

1.1 Introduction

The Governors of the central banks of the Group of Ten (G-10) industrial countries have endorsed a comprehensive strategy under which the private and public sectors can together seek to contain the systemic risk inherent in current arrangements for settling foreign exchange transactions. This report, prepared by the Committee on Payment and Settlement Systems (CPSS) of the central banks of the G-10 countries, describes the strategy and presents its underlying analysis.

1.1.1 Central bank concerns

The vast size of daily foreign exchange (FX) trading, combined with the global interdependencies of FX market and payments system participants, raises significant concerns regarding the risk stemming from the current arrangements for settling FX trades. These concerns include the effects on the safety and soundness of banks, the adequacy of market liquidity, market efficiency and overall financial stability.

The risk to domestic payments systems, and to the international financial system, posed by the FX settlement process came into focus at the time of the 1974 failure of Bankhaus Herstatt. More recent examples include Drexel, BCCI, the attempted Soviet coup d’état and Barings.

1.1.2 G-10 initiatives to address concerns

In response to the Herstatt episode, the G-10 central banks began by working together on supervisory issues, including FX market risk and the need for an international early warning system. In the early 1980s, they began to study the payments systems used for the settlement of domestic and cross-border transactions, with a view to ensuring that the structures and designs of those systems did not create unacceptable interbank credit exposures and did not generate liquidity risks for the financial markets or for the national or international banking systems. It was in particular apparent that large-value cross-border payments, including those made in settlement of FX transactions, account for a large, and sometimes very large, proportion of flows through domestic payments systems, and this was seen to require detailed analysis.

The work of the G-10 central banks on international payment arrangements has produced several studies, including the February 1989 Report on Netting Schemes (the Angell Report), the November 1990 Report of the Committee on Interbank Netting Schemes (the Lamfalussy Report) and the September 1993 report on Central Bank Payment and Settlement Services with respect to Cross-Border and Multi-Currency Transactions (the Noel Report). Through these studies the central banks identified issues that may be raised by cross-border and multi-currency netting arrangements, recommended minimum standards and an oversight regime for cross-border netting schemes, and examined possible central bank service options that might decrease risk in the settlement of FX trades.

In June 1994 the CPSS formed the Steering Group on Settlement Risk in Foreign Exchange Transactions to build upon this past work and to develop a strategy for reducing FX settlement risk. In preparing its report, the Steering Group developed a definition and methodology for measuring FX settlement exposure.… Using this analytical framework, the Steering Group surveyed approximately 80 banks in the G-10 countries to document current market practices for, and barriers to, managing settlement risks in a prudent manner. This work yielded the following key findings:

  • FX settlement exposure is not just an intraday phenomenon: current FX settlement practices create interbank exposures that can last, at a minimum, one to two business days, and it can take a further one to two business days for banks to know with certainty that they received the currency they bought.

  • Given current practices, a bank’s maximum FX settlement exposure could equal, or even surpass, the amount receivable for three days’ worth of trades, so that at any point in time—including weekends and public holidays—the amount at risk to even a single counterparty could exceed a bank’s capital.

  • Individual banks could, if they so choose, significantly reduce their own exposures and systemic risk more broadly by improving their back office payments processing, correspondent banking arrangements, obligation netting capabilities and risk management controls.

  • Well-designed multi-currency services such as multi-currency settlement mechanisms and bilateral and multilateral obligation netting arrangements could greatly enhance the efforts of individual banks to reduce their FX settlement exposures.

  • Some major banks are concerned about the sizable FX settlement risks they face and are actively pursuing ways to improve their own settlement practices and to collectively develop risk-reducing multicurrency services.

  • Nevertheless, despite their considerable capacity to reduce FX settlement risk through individual and collective action, many banks remain sceptical about devoting significant resources to such efforts.

1.2 Summary of strategy

Overall, the G-10 central banks believe that private sector institutions have the ability, through individual and collective action, to significantly reduce the systemic risks associated with FX settlements. Accordingly, the Governors of the G-10 central banks have agreed that the following three-track strategy should be implemented:

  • Action by individual banks to control their foreign exchange settlement exposures

Individual banks should take immediate steps to apply an appropriate credit control process to their FX settlement exposures. This recognises the considerable scope for individual banks to address the problem by improving their current practices for measuring and managing their FX settlement exposures.

  • Action by industry groups to provide risk-reducing multicurrency services

Industry groups are encouraged to develop well-constructed multicurrency services that would contribute to the risk reduction efforts of individual banks. This recognises the significant potential benefits of multi-currency settlement mechanisms and bilateral and multilateral obligation netting arrangements, and the G-10 central banks’ view that such services would best be provided by the private sector rather than the public sector.

  • Action by central banks to induce rapid private sector progress

Each central bank, in cooperation, where appropriate, with the relevant supervisory authorities, will choose the most effective steps to foster satisfactory private sector action over the next two years in its domestic market. In addition, where appropriate and feasible, central banks will make or seek to achieve certain key enhancements to national payments systems and will consider other steps to facilitate private sector risk reduction efforts. This recognises the likely need for public authorities to encourage action by individual banks and industry groups, and to cooperate with these groups, to bring about timely, market-wide progress.

The G-10 central banks believe that this strategy can adequately address the systemic risk inherent in current practices for settling FX transactions. Indeed, several important industry initiatives are well under way. For instance, in 1994 the New York Foreign Exchange Committee issued a report and a set of recommendations designed to help market participants reduce their FX settlement exposures.… That report, and the general topic of FX settlement risk, have since received considerable attention. In addition, … several risk-reducing multi-currency services are currently available in the market. These include bilateral obligation netting arrangements provided by FXNET, S.W.I.F.T. and VALUNET, and multilateral obligation netting and settlement services provided by ECHO and, prospectively, the proposed Multinet International Bank. Furthermore, the recently formed “Group of 20” banks and other private sector organisations are exploring the feasibility of establishing other multi-currency settlement services. The G-10 central banks for their part stand ready to cooperate, where appropriate and feasible, with all industry groups seeking to develop risk-reducing multi-currency settlement services.

Although any or all of these private sector efforts could play a major role in improving the current situation, they have yet to bring about a substantial and permanent reduction in FX settlement risk throughout the market. Accordingly, the G-10 central banks will closely monitor the progress of private sector action over the next two years to determine the need for further action.

6 Reducing Foreign Exchange Settlement Risk

[Excerpt]1

III. RECOMMENDATIONS FOR PRIVATE-SECTOR BEST PRACTICES

The sixteen best practices cited below fall into four categories: internal procedures, netting, credit risk management, and crisis management. Many of the best practices can be easily implemented; others may entail expensive or complicated changes in back office operations and systems technology. While many of the best practices can be implemented by the firm internally, others require the cooperation of the firm’s correspondent or counterparty. Several of the recommended practices are presently being followed in some parts of the industry. Most of the banks that participated in the Committee’s study have implemented at least some of these practices.

The Committee urges market participants to review their own methods of quantifying and controlling settlement risk and to adopt the designated best practices in their operations, credit controls, and crisis management procedures.

Improve Internal Procedures and Correspondent Bank Services to Reduce Settlement Exposures

Together, improving internal procedures and obtaining the best available correspondent bank services have been shown to have the greatest impact in reducing settlement exposure. Because internal procedures are wholly within the control of the individual firm, an evaluation of current operational procedures and their impact on settlement exposure is recommended as the first step to reducing settlement risk. Similarly, services rendered by a firm’s correspondent banks are critical in their impact on settlement risk. Accordingly, firms should seek the highest level of correspondent services available.

Recommendation No. 1 Understand the settlement process

Senior management should promote a complete understanding of the settlement process at all decision-making levels.

To improve internal procedures and controls, decision-makers at all levels, from operations and administrative personnel to credit and senior management, should understand the settlement process fully. Knowledge of when payment instructions are made, when they become irrevocable, and when confirmation of counterparty payment is received with finality is key to determining both the duration and the value of foreign exchange settlement exposure.

Recommendation No. 2 Understand settlement exposure

Credit and risk managers should understand the impact of their internal procedures on settlement exposure and develop accurate methods of quantifying the extent of their risk.

Once a firm has released payment in one currency, its settlement risk with a counterparty is 100 percent of the full amount it expects to receive in another. At a minimum, the full amount is at risk for those hours between the actual payment of currency and the firm’s receipt of final funds. More significantly, the period of potential exposure extends from the time that payment instructions become irrevocable until the firm knows that payment has been received. The timing of the settlement process can extend the period of settlement risk on a single day’s transactions from several hours to one or more days. For example, if irrevocable instructions for tomorrow’s payments have been sent out before the firm has reconciled today’s receipts, the value of settlement exposure will increase to the total of two days’ expected receipts. As a first step in reducing risk, therefore, credit and risk management personnel must understand and accurately measure the extent of their firm’s settlement exposure.

Recommendation No. 3 Review and upgrade correspondent services

The bank relations department should review the firm’s correspondent bank relationships to ensure that the services provided give the firm maximum control over its nostro account. Emphasis should be placed on obtaining the latest possible cutoff times for cancellation and amendment of payment instructions and the earliest possible confirmation of final receipt.

Historically, many firms have based their choice of correspondent on relationship considerations, attaching less importance to the quality of settlement services provided. Bank relations management should shift that emphasis toward selecting the correspondent that can provide the highest level of services available. Bank relations personnel need to be aware of the cutoff times imposed by their correspondents on receipt of payment instructions, cancellations, and amendments, and they need to know how quickly a correspondent can provide notification of final receipts.

The Committee’s survey results and discussions with providers of correspondent services suggest that, firms have usually been able to negotiate more favorable terms in more recently established correspondent relationships than exist in their longer standing relationships. Bank relations personnel should, therefore, review existing correspondent bank terms on a regular basis and negotiate improvements where necessary.

a. Cutoff times for cancellations/amendments

A correspondent bank should provide the latest possible cutoff time for a firm to cancel or amend payment instructions with same day effect. Correspondent banks should distinguish cutoff times for cancellations that can be effected before funds have left their control (in other words, before instructions have been submitted to the payments system) from cutoff times for cancellations that are done after. The distinction is important: in the first case, counterparty exposure is avoided, but in the second case, it is not. A cancellation after payment has already been processed in the payments system may require the consent of the beneficiary or receiving bank, and the return of funds typically occurs on the following business day. For this reason correspondents’ cutoff times for same-day cancellations usually fall some time before the opening of the payments system. Correspondents may also offer different cutoff times for cancellations of “book-entry” transfers (i.e., payments requiring only an internal transfer of funds to the recipient’s account with the correspondent). These times may be earlier or later, depending on the individual correspondent’s practices.

If the cutoff time for cancellation or amendment has passed, but payment has not yet been released, the correspondent bank may attempt to cancel or amend the instructions on a best efforts basis. Many times, a correspondent bank can cancel payment instructions after the cutoff time, but because it cannot guarantee a cancellation with 100 percent certainty, it sets a very early formal cutoff time. Firms should be aware of the distinctions in cutoff times and the additional management capability, particularly in crisis situations, that best efforts services may impart.

A firm that negotiates with the correspondent bank for cutoff times as close to the opening of the payments system as possible and for the latest possible cutoff times for book-entry transfers will have the greatest flexibility in managing crisis situations. All cutoff times should be confirmed in writing by the correspondent bank. Finally, firms should maintain high-level personal contacts at the correspondent bank and have access to correspondent bank personnel 24 hours a day in crisis situations.

b. Intra-day notification of receipts

Correspondent banks should be able to provide intra-day notice of receipt and to send account statements as soon after finality of the relevant currency as possible. With the proper systems interface, intra-day notices may be used to reconcile payments and receipts on the value date. When the currency is settled through a gross real-time transfer system with intra-day finality, reconciliation can actually be done throughout the day. In a net payments system, reconciliation can begin earlier in the day but can only be done with complete assurance upon finality in the payments system.

Recommendation No. 4 Complete reconciliation as early as possible

Creating the system support necessary to process intra-day notification of receipts and to begin the reconciliation process before the end of the day is an investment that will significantly reduce the amount of time that the total settlement receivable due from each counterparty must be considered at risk.

If reconciliation is completed by the close of the currency’s payments system, operations personnel can identify problems much earlier and prevent the release of additional payments if necessary. Automated reconciliation systems should be in place to take advantage of electronic bank statements so that the debit/credit matching process can begin as soon as possible against the firm’s own internal records. Exception reports should be available as quickly as possible for investigation.

Recommendation No. 5 Monitor non-receipts and establish and practice clear follow-up procedures

Senior management should establish procedures to evaluate non-receipts of payments and to alert all concerned parties to potential problem situations.

An ongoing dialogue should exist between operations, risk management, trading and sales, and credit to identify potential problem situations as early as possible. Non-receipts should be prioritized using counterparty credit ratings, payment amount and currency, or an internally generated counterparty watch list. The reporting of fails, like the reporting of excesses, should follow standard protocols. In the event that a fail is not an isolated incident, clear problem management procedures should come into play; all outstanding trades should be reviewed, and consideration given to stopping all new activity. Information heard in the market should be communicated from sales and trading to credit and management. The legal department should be notified of any fails that are not resolved through the regular investigation process.

The effectiveness of each of the controls discussed above is dependent upon the settlement operations and the communications and technical capabilities of the firm and its correspondent banks. Firms and their correspondents will need to weigh the costs of upgrading their settlement procedures and information flows against the long-term benefits. Senior management should make the necessary investment to ensure that the reconciliation process is completed as soon as possible.

Institute Payment Netting to Reduce Settlement Risk

Recommendation No. 6 Establish netting arrangements

Payment netting arrangements should be established with market participants to reduce settlement risk.

Well documented netting of payments (settling net currency amounts on value date rather than settling transactions individually) can dramatically reduce settlement risk in the foreign exchange market. The Committee’s analysis demonstrates that netting payments can reduce settlement exposure substantially. Netting is most effective in reducing exposure when the counterparties to a transaction actively trade on both sides of the market.

Firms must ensure to the best of their ability that all netting arrangements are supported by agreements that are legally enforceable in all jurisdictions where the arrangements will be operative.

However, senior management should understand that the legal framework of an executed agreement does not by itself reduce settlement risk in the underlying transaction. The driving force behind agreements such as the IFEMA (International Foreign Exchange Master Agreement) or other netting agreements has been for the bankruptcy close-out provisions required under FAS 105 for netting balance sheet reportables. These bilateral agreements also allow firms to comply with the amended Basle Accord for recognition of netting benefits for calculation of capital requirements. A number of firms are executing netting agreements but not physically netting settlements with the parties to those agreements. Greater risk reduction is offered by an agreement mandating that parties both net payments and provide close-out netting.

Recommendation No. 7 Establish operational capability to net payments

Management should develop the operational capability to net payments.

Firms often resist netting on the grounds that it requires expensive and complex changes in systems technology. Firms might consider purchasing one of the commercially available netting systems as an alternative to upgrading existing in-house systems. In either case, initial investments in technology and operational training are returned in cost savings over a very short period of time. Dealers who net settlements with their major counterparties report significant operational cost savings not only because fewer payments are processed, but also because clear procedures for confirming and matching netted transactions result in fewer errors. Clearly, in the event of a non-receipt due to counterparty default, a netted amount due in all likelihood represents a significantly smaller loss than would otherwise have been suffered.

Formally documented, netting of payments is the most significant means of reducing routine settlement exposure among active participants in the foreign exchange market. Netting of payments enables market participants not only to reduce settlement volumes and risk, but also to realize substantial operational cost savings over time. The differences in size between settlement losses and pre-settlement close-out losses can be large. While documentation alone can give a firm the right to net pre-settlement gains and losses in the event of a counterparty default, reduction of settlement risk must additionally be addressed in actual practice.

Promote Sound Settlement Risk Management Practices

Recommendation No. 8 Make credit risk managers responsible for monitoring and controlling settlement exposure

Credit risk managers stationed on the trading floor should have primary responsibility for the monitoring and control of foreign exchange counterparty exposure.

Credit risk managers should have a thorough understanding of foreign exchange trading, including operations and settlement procedures, and associated pre-settlement and settlement risk. They should understand the various means available to mitigate or eliminate those risks and be familiar with the credit and legal issues addressed in netting agreements and other supporting documentation.

Responsibility for the day-to-day monitoring of counterparty exposure and compliance with credit limits falls to credit managers. They should ensure that settlements exceeding approved limits are addressed appropriately, either by obtaining the credit department’s approval to settle excesses or by taking action to reduce exposure. They should also monitor trends in credit line use in order to identify repeated over-limit settlements. Credit risk managers should be apprised of all payment fails and respond directly to those requiring immediate management attention.

Another function of the credit risk manager is to oversee any measures necessary to reduce settlement exposure. To reduce exposure, counterparties may agree to roll trades out to settle on a different value date, close out positions by doing an offsetting transaction, or settle trades on a delivery-versus-payment basis (i.e., require the counterparty to deliver the currency bought before paying out the currency sold). Because such measures can involve changes to funding requirements and payments instructions and may entail interest compensation, the credit risk manager should keep the traders and operations personnel informed of these activities. If a counterparty refuses a request to reduce settlement exposure, credit risk managers should join with senior management in negotiating a resolution.

Credit risk managers should encourage ongoing dialogue between trading, sales, operations, credit, and management to ensure that information heard in the market is conveyed to credit and senior management and that the concerns of credit and management are being conveyed to trading, sales, and operations personnel.

Recommendation No. 9 Set prudent settlement exposure limits

The credit department, functioning autonomously from the trading and sales areas, should set settlement exposure limits for all counterparties regardless of size.

Limits should be based on the creditworthiness of the counterparty and should conform to the firm’s guidelines on counterparty exposure. Follow-up reviews of existing counterparty relationships should be conducted regularly at prudent intervals.

Settlement limits should be applied to the full value of all currencies due from a counterparty but not confirmed paid with finality. If a firm irrevocably issues a given day’s payment instructions before receipts from the preceding day or days have been reconciled, the amount of settlement exposure should include not just that day’s expected receipts but all unconfirmed and non-final (provisional) amounts from preceding days as well.

Recommendation No. 10 Update exposures on-line and aggregate exposure globally across all dealing centers

When a firm has dealing centers located in different time zones, counterparty exposure should be monitored in real time and aggregated globally across the firm’s dealing centers and the various trading locations of the counterparty.

Without on-line reporting capability, a trader in one time zone who has very limited knowledge of what dealing centers in earlier time zones have transacted with the counterparty will be unable to assess counterparty exposure and line usage in a timely manner. However, the Committee does recognize that it may be difficult to switch to an on-line system immediately because of cost considerations.

Alternatively, in the absence of global monitoring capability, credit risk managers should make allocations of lines for each of their dealing centers. This means of setting limits is less efficient than on-line global monitoring, however, because manual intervention is often required to reallocate line availability from one center to another on the basis of need.

Settlement positions should also be monitored not only for the spot date, but for each future date so that if exposure is unacceptably high, there is sufficient time to arrange to reduce it. The potential settlement exposure value should also be projected for all over-the-counter options on foreign exchange, regardless of whether the option is presently in the money.

A firm should have clear procedures in place for communicating limit violations to the appropriate areas. These procedures should include the communication of all overages to the credit department for approval to settle and the notification of senior management when unacceptably high levels of exposure require remedial action.

Recommendation No. 11 Enforce adherence to settlement limits

The credit department should ensure that traders have up-to-date information on counterparty limits and exposure before they execute a trade.

Traders should adhere to settlement limits, unless they have obtained prior permission from the credit department to exceed them. Procedures should be in place to ensure a rapid response by credit officers to requests to exceed limits on a one-off basis or increase limits on a permanent basis. Similarly, credit officers should clearly communicate to the traders and sales staff when over-limit settlement exposure with a counterparty will not be tolerated. The importance of this two-way communication must be emphasized. Taking exposure-reducing measures without the agreement of the counterparty can compromise the counterparty relationship or create other, more serious problems. At the same time, of course, the firm must recognize that withholding payment may cause liquidity problems for the counterparty and impede its ability to meet other obligations.

Recommendation No. 12 Mandate ownership of credit risk

Senior management policy should clearly indicate which area takes responsibility for losses stemming from counterparty failure.

Management may choose to allocate the losses resulting from a counterparty default directly to the area responsible for approving or controlling the exposure or to the trading or sales group responsible for maintaining the counterparty relationship. Losses directly attributable to an overlimit or unauthorized trade should be debited directly to the profit and loss of the trader responsible. However, if management chooses to allocate credit losses, its policy should be clearly defined and communicated to all personnel before a loss occurs.

Establish Contingency Plans for Crisis Management

Crisis situations can be either systemic or counterparty related. Systemic problems include technical failure, settlement system breakdown, settling agent failure, and force majeure. Counterparty situations include insolvency, repudiation of trades, liquidity problems, and largescale operational failure.

In crisis situations of any kind, a firm must be sensitive to the potential ramifications of risk-reducing actions. A firm’s decision to withhold a settlement payment from a counterparty could create liquidity problems for a single counterparty or in the payment system itself, setting off a domino effect that ultimately affects many participants. As events in the financial markets have demonstrated in recent years, the reaction of the market to a perceived crisis may actually exacerbate the situation.

Recommendation No. 13 Prepare for crisis situations

Firms should anticipate crises and prepare internally.

Each firm should assemble a crisis management team headed by a member of senior management and composed of credit, risk management, and operations personnel. The team should simulate different crisis situations to identify weaknesses in internal communication and to practice a coordinated response. The team should know how and at what level to communicate effectively with other institutions, correspondent banks, regulators, and central banks.

Recommendation No. 14 Utilize all correspondent capabilities

The quality of services provided by a firm’s correspondents should be proved well in advance of a crisis.

During a crisis, a correspondent’s capabilities become critical to the firm’s management of its settlement exposures. The firm should identify those individuals at its correspondent who can provide support offhours, and most important, the individual who can accomplish the most within the operating constraints of both the correspondent and the payment system.

Recommendation No. 15 Involve senior management

Senior management should be apprised of a crisis situation at the outset and directly involved in controlling it.

The potential repercussions of major settlement failures require that senior management be directly involved in seeking a resolution. Much can be done at the senior level to verify news heard in the market or to coordinate a concerted response to a crisis situation by the industry.

Recommendation No. 16 Establish industry working groups

At the industry level, working committees should be formed to study the dynamics of crisis situations.

Representation should include senior managers of the major market participants, correspondent agents, and payment service providers. The committee would explore coordinated responses to crises that would minimize disruption to the market, avert liquidity squeezes, and preserve the integrity of the markets.

These groups should study past crises and their resolutions. Their goal should be to recommend or develop methods by which market participants can protect themselves at the same time they avoid exacerbating liquidity problems and disruption to the market.

The Convention was signed at Geneva on June 7, 1930 and entered into force on January 1, 1934. 143 League of Nations Treaty Series 259 (1933–34).

The Convention was signed at Geneva on March 19, 1931 and entered into force on January 1, 1934. 143 League of Nations Treaty Series 357 (1933–34).

Footnotes omitted.

Bills of Exchange Act, 1882, 45 & 46 Victoria, chapter 61 (as amended). This text includes amendments through November 28, 1996.

This text is an excerpt from Central Bank Payment and Settlement Services with Respect to Cross-Border and Multi-Currency Transactions (September 1993), prepared by the Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries, Bank for International Settlements.

This text is an excerpt from Settlement Risk in Foreign Exchange Transactions (March 1996), prepared by the Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries.

This text is reproduced with permission from file New York foreign Exchange Committee. It is an excerpt from The New York Foreign Exchange Committee, Reducing Foreign Exchange Settlement Risk 23–32 (October 1994).

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