Introduction to the Bill of Exchange in Ghana

Introduction:

This note will examine the definition of a bill of exchange and the parties involved in a bill of exchange transaction.

Statutory Definition of a Bill of Exchange and Parties Involved:

According to section 1(1) of the Bill of Exchange Act, 1961 (Act 55), 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.

Before moving on to explain the highlighted words, it is essential to understand the different parties to a bill of exchange.

The Drawer:

The drawer is the party giving an unconditional order in writing addressed to another, requiring that other person 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. Simply put, the drawer is the party who draws or issues the bill and gives the order to pay to another.

The Drawee and the Acceptor:

The drawee is the party to whom the unconditional order is addressed and given and who is required 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. If a negotiable instrument is a cheque, the drawee would be the paying bank. If it is a bill of exchange, the drawee is likely a debtor (a buyer who has not paid for goods).

The drawee becomes the acceptor once he accepts the bill or undertakes to pay it, and he does this by signing the bill.

The Drawer and Drawee as the Same Person:

While the explanation above presupposes that the drawer and the drawee are always different parties, there are circumstances where the drawer may address the bill to himself, thereby making him the same as the drawee. The bill may equally be addressed to a fictitious person or to a person lacking contractual capacity.

In such circumstances, section 3(2) of Act 55 provides that

Where in a bill the drawer and the 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.

Thus, if the drawer and the drawee are the same persons, the bill is neither conclusively a bill of exchange nor a promissory note, but can be either based on how the holder (the payee or endorsee of a bill or note who is in possession of it, or the bearer thereof) chooses to treat the instrument.

The Payee:

The payee is the person to whom the drawee is ordered to pay on demand or at a fixed or determinable future time, a sum certain in money. The payee is usually named on the bill or is simply the person who is the bearer of the bill. Sometimes, the drawer may be the same as the payee; this happens if the person to whom the drawee is ordered to pay money to is the drawer.

Understanding the Statutory Definition of a Bill of Exchange:

We use the following illustration to help you understand the statutory definition of a bill of exchange.

Pursuant to the definition of a bill of exchange in section 1(1) of Act 55, the document above is a bill of exchange because:

1. It contains an unconditional order given by Abdul,
2. which was expressed in writing,
3. addressed to another (Junaid),
4. signed by person giving the unconditional order (Abdul),
5. requiring the person to whom it is addressed (Junaid) to pay at a fixed future time,
6. a sum certain in money,
7. to a specific person (Abdul).

These key phrases are explained below:

1. There was an Unconditional Order (from Abdul):

For a document to be considered a bill of exchange, it must contain an unconditional order to the drawee to pay the face value of the bill without giving any condition to be fulfilled before payment is made.

If the writing on the document handed over to Junaid by Abdul was "60 days after date, and if the iPhone is still functioning properly , pay to me or to my order, the sum of Ghc 16,000, for value received", it would not be considered a bill of exchange because the order to pay will be a conditional one, as it depends on the proper functioning of the iPhone. If Abdul had also written that Junaid should pay when he has money (availability of funds), the paper he handed over to Junaid would not be considered a bill of exchange because the order to pay would have been made conditional to the availability of funds.

The authority for the above explanation is section 1(3) of Act 55 which provides that

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.

The reason an order to pay out of a particular fund is not an unconditional order is that the ability of the drawee to pay is contingent or conditional on the availability of funds in that particular fund or account referred to by the drawer.

However, an unqualified order to pay coupled with an indication of a particular fund out of which the drawee is to reimburse himself is still considered unconditional because the availability or otherwise of money in that particular fund only affects the ability of the drawee to reimburse himself and not the ability of the drawee to pay the payee.

Further, an order directing payment to be upon a contingency is not a bill of exchange because section 9(2) of Act 55 provides that "an instrument expressed to be payable on a contingency is not a bill, and the happening of the event does not cure the defect." The reason for this is that such an order is not an unconditional order, as the contingency may or may not occur. Further, even if the contingency occurred, such occurrence will not operate to transform the document into a bill of exchange. To illustrate, assume Abdul had expressed the bill addressed to Junaid to be payable when Abdul runs out of iPhone 14 in his stock. In this scenario there is no certainty of when Abdul would run out of the device in his shop. However, even if it so happens that Abdul runs out of stock after, say, 30 days, this does not make the document become a bill of exchange as it was never one ab initio due to the time for payment not being determinable.

2. The Unconditional Order was in Writing:

The unconditional order to pay must also be in writing to be considered a bill of exchange. It must be noted that there is no need to use a particular paper to write the unconditional order, but businesses, out of formality, may have their preferred means of writing such orders, or they may have templates.

If Abdul had simply told Junaid that "60 days after date, pay to me or to my order, the sum of Ghc 16,000, for value received," without reducing same into writing in the manner in which he did above, there would be no bill of exchange. Section 1(2) of Act 55 provides that "an instrument which does not comply with these conditions [those contained in section 1(1) of Act 55, one of which is writing] , or which orders any act to be done in addition to the payment of money, is not a bill of exchange." Italics added.

There are often questions about whether an electronic transfer order, especially one between banks, will constitute a bill of exchange. In the case of Victoria Island Properties Ltd & Anor v. Standard Chartered Bank Gh Ltd & Anor [20/12/2006] CIVIL APPEAL NO. J4/5/2006 , Twum JSC stated that

What is the legal nature of electronic money transfer orders? The wording of the communications in exhibits B, B1, B3 and B4 made it clear that the SWIFT system used in money transfer transactions did not involve negotiable instruments; at any rate, the recorded acknowledgements are not bills of exchange…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. Electronically conveyed messages do not fit this definition of a bill of exchange in section (1) of the BEA. 1961. Such messages are not unconditional orders. They are really banker to banker requests among members of SWIFT and the sums are not payable on demand .

3. The Unconditional Order in Writing was Addressed to Another (Junaid):

Per section 1(1) of Act 55, the unconditional order to pay a sum certain in money is addressed by one person to another. The person to whom the order is addressed has been earlier identified as the drawee. Section 4 of Act 55 makes provisions on the address to the drawee, and in subsection 1, it is provided that "the drawee must be named or otherwise indicated in a bill with reasonable certainty."

There may be instances where there is more than one drawee. Per section 4(2) of Act 55, "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."

4. The Bill was Signed by the Person Giving the Order (Abdul):

Per section 1(1) of Act 55, the party giving the unconditional written order, the drawer, must sign the document on which such an order is contained. In section 21 of Act 55, the liability of the drawer is premised on the drawer signing the bill. It states that "no person is liable as drawer, endorser, or acceptor of a bill who has not signed it as such."

In the present case, Abdul appended his signature to the lower right corner of the bill he handed over to Junaid, thus fulfilling this condition.

5. The Drawee, Junaid, was Ordered to Pay at a Fixed Future Time:

Per section 1(1) of Act 55, the drawer must unconditionally order the drawee to "pay on demand or at a fixed or determinable future time…"

Thus, the drawee may either be ordered to pay money to another on demand or to pay money to another at a determinable future time.

When the drawee is ordered to pay another on demand, the bill containing such an order is a bill payable on demand. Section 8 of Act 55 provides for when a bill can be considered 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 is expressed.

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

When a bill is payable on demand either because it has been expressed on the bill that it is payable on demand or on sight or on presentation, or because no time for payment is expressed on the bill, the drawee is under an obligation to pay the payee once the latter submits the bill to him. For such bills, the unconditional order may be of the form "On demand, pay to [name of payee] or to my order, the sum of [amount to be paid], for value received".

If the bill is not payable on demand either because it is not expressed on the bill as payable on demand or because a time for payment is expressed, then the bill is payable at a determinable future date. Section 9 of Act 55 provides for when a bill can be considered payable at a determinable future time.

(1) A bill is payable at a determinable future time within the meaning of this Act which is expressed to be payable-

(a) at a fixed period after date or sight;

(b) 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.

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

In the present case, the bill is payable at a determinable future time because it is expressed to be payable 60 days after date.

6. What Junaid was Ordered to Pay at the Determinable Future Date was a Sum Certain in money

Money is understood to include legal tender or foreign currency. If the drawer orders the drawee to do any other thing in addition to the payment of money, the instrument (document) on which such orders are contained is not a bill of exchange, as section 1(2) of Act 55 provides that "an instrument...which orders any act to be done in addition to the payment of money, is not a bill of exchange".If Abdul had written "60 days after date, pay to me or to my order the sum of Ghc 16,000 and help me run errands henceforth, for value received" on the instrument above, then the instrument would not be a bill of exchange as he would have required Junaid to do an act (run errands) in addition to the payment of money.

While the phrase a "sum certain in money" denotes a fixed amount, section 7(1) of Act 55 still considers the sum payable by a bill "a sum certain in money" although it is 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.

If Abdul had required Junaid to pay the Ghc 16, 000 with 10% interest, the sum payable will still be considered a sum certain in money since the amount together with interest would be computable.

7. The Sum Certain in Money must be Payable to [a Specific Person] or to the order of a Specific Person, or to Bearer:

Section 1(1) of Act 55 contains the phrase "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."

The emboldened phrases contain three distinct parties to whom the drawee may pay a sum certain in money upon the order of the drawer. The drawee may be ordered to pay a sum certain in money:

1. to a specified person; or
2. to the order of a specified person; or
3. to a bearer.

These provisions are explained below.

Pay a sum certain in money to a specified person.

When the drawee is ordered to pay a sum certain in money to a specified person, which implicitly means the bill is not payable to bearer, that specific person, per section 5(1) of Act 55, must "be named or otherwise indicated therein with reasonable certainty".

Sometimes, a bill may be payable to two or more persons. Per section 5(2) of Act 55, "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."

In instances where the payee identified by the drawer on the bill is fictitious or non-existent, section 5(3) of Act 55 provides that "...the bill may be treated as payable to bearer".

Or pay a sum certain in money to the order of a specified person

Usually, when a drawee is asked to pay a sum certain in money to a specified person, the drawer equally orders the drawee to pay "to the order" of a specified person. The phrase "to the order of a specified person" indicates that the specified person named on the bill can endorse the bill and transfer the right to receive the payment to another person. Thus, this phrase essentially enables the payee named on the bill to negotiate (transfer) the bill to another person, and the drawee would be under an obligation to pay that other person.

The explanation above is supported by section 6(4) of Act 55 which provides that "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 ." The highlighted part of the provision shows that bills that are payable to order must be transferable to be properly so called.

Going back to our illustration where Abdul ordered Junaid to pay to him, or to his order, Ghc 16, 000, Abdul is the specified person to whom payment is to be made. The phrase "or to my order" as used by Abdul further grants Abdul the right to subsequently endorse and transfer the bill to another person to whom the drawee will be obligated to pay the sum certain in money.

Or pay a sum certain in money to a bearer:

When a bill is not payable to a specified person or to the order of a specified person, it may be payable to bearer. According to section 97 of Act 55, a bearer "means the person in possession of a bill or note which is payable to bearer"

There are various conditions which may make a bill payable to bearer.

1. When payee is Fictitious or Non Existing: Per section 5(3) of Act 55, "where the payee is a fictitious or non-existing person the bill may be treated as payable to bearer."
2. When the Bill is Expressed to be Payable to Bearer : Per section 6(3) of Act 55, "A bill is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank." In the present case, the instrument given to Junaid would have been a bill payable to bearer if he had written on it "60 days after date, pay to bearer, the sum of Ghc 16,000 for value received," because it would have been expressed to be so payable.
3. Endorsement in Blank: Per section 32(1) of Act 55 "An endorsement in blank specifies no endorsee, and a bill so endorsed becomes payable to bearer."

Conclusion:

This note has provided a basic overview of the bill of exchange per the provisions of Act 55. Subsequent notes will delve deeper into the provisions of Act 55.