Negotiable instruments

This chapter explains the law on negotiable instruments. A negotiable instrument is a signed document detailing the ownership of a debt that may be used by debtors as a method of paying for goods or services. As such, a negotiable instrument can be used as an alternative to payment in cash or via electronic transfer of funds. The benefit of settling a debt by means of a negotiable instrument is that the signed document in question can be negotiated. This means the document can be transferred from one person to another before the debt it details is due to be paid. In essence, a negotiable instrument is equivalent to cash, given that it can change hands many times in its lifetime in exactly the same way as money does. Although negotiable instruments are not used as frequently as they were in the past, they still have a part to play in modern day commercial transactions when an immediate cash payment is not
required or desired by the creditor. Negotiable instruments include: bills of exchange; cheques (which are a distinct type of bill of exchange); and promissory notes. The law relating to negotiable instruments is mainly found in the Bills of Exchange Act 1882 (hereinafter referred to as the “BOEA 1882”) as amended by the Cheques Act 1957 and the Cheques Act 1992. Until the enactment of s.13 of the Small Business, Enterprise and Employment Act 2015, a negotiable instrument was a paper document only. Section 13 amended the BOEA 1882 (inserting s.89A) to permit presentment for payment via an “electronic image of both faces of the instrument”. Accordingly, the physical instrument need not be produced when payment falls due if the person to whom presentment is to be made has agreed to accept presentment by electronic means.2 In practice, this innovation, known as the Image Clearing System, (in operation within the banking sector from 30 October 2017 onwards) will mainly apply to presentment of cheques to a bank for clearing.