When transacting huge amounts of money, it’s easier to ditch those bulky paper bills and heavy coins with just a piece of paper called a bill of exchange. However, Canadian laws actually regulate the use of these bills and other negotiable instruments through the Bills of Exchange Act.
What is the Bills of Exchange Act?
The Bills of Exchange Act of Canada is the federal statute that governs the validity and transactions using bills of exchange and other negotiable instruments. To understand this law, let’s first look at a bill of exchange, which is the main subject of this law.
As defined by this law, a bill of exchange is a written order, addressed by the payee (one who gets paid) to the payor (one who will pay). Under its terms, the payee must pay the payor a specified amount either:
- on demand
- at a future time
The payor may not necessarily be the person whom the payee originally transacted with. The law says that the payment can be made either to:
- the order of a specified person
- to the bearer of the bill of exchange
- to the holder in due of course
Bills of exchange are just one of the many negotiable instruments that are commonly used in Canada. Others are cheques, promissory notes, and consumer bills and notes. Although each of these negotiable instruments differ, they’re all governed by the Bills of Exchange Act.
Know more about how a bills of exchange and cheques work with this video:
If your business frequently uses negotiable instruments, it’s more convenient to consult with a legal professional. Check out our directory of the best corporate finance lawyers in Canada as ranked by Lexpert.
What are the ways to comply with the Bills of Exchange Act?
As a business owner, there are many ways to ensure compliance with the Bills of Exchange Act. Since each business is unique from each other, it’s important to retain a local lawyer for this, such as those who specialize in corporate finance.
In any case, here are some of the methods that your business can use to comply with this law:
Follow the formal requisites for a bill of exchange
To be a valid instrument, the Bills of Exchange Act sets out the formal requisites for the bills of exchange, cheques, and promissory notes. This is important, since non-compliance may invalidate the instrument, forfeiting any agreement that the parties may have.
Here are the formal requisites for bills of exchange under the Act:
- order must be unconditional: the duty to pay must be unqualified (e.g., must not be dependent on a contingency), coupled with either the account where the drawee (the bank) can reimburse themselves after payment or the statement of transaction which is the cause of the bill
- drawee must be addressed: the drawee must be identified with reasonable certainty; the bill can also be addressed to two or more drawees but not to alternative drawees nor to two or more drawees in succession
- payee must be identified: the payee must be properly named; the bill can be jointly paid to two or more payees or be alternatively paid to two or more payees; if the payee is fictitious or non-existent, the bill will be treated as payable to bearer
- bill must be paid at a determinable future time: this means that the bill must expressly say that it’s payable either on sight, at a fixed period after a certain date or after sight, or at a fixed period after an event which is bound to happen
Exceptions to the requisites of a bill of exchange
However, the law provides for certain exceptions to the formal requisites of a bill, making it still a valid instrument. The Act says that a bill is invalidated by the following details or omissions in a bill of exchange:
- it’s not dated
- the value given is not specified
- the place where it's drawn isn’t specified
- the place where it's payable isn’t specified
- it’s antedated, post-dated, dated on a Sunday or other non-juridical day
Rights and powers of the holder in due course
Over the course of several business transactions, the holder of the bill of exchange may shift, especially when these transactions involve different parties. While it does not change who the payor is, the payee and/or the drawee bank may change, depending on the circumstance of each case. The last legal holder of the bill is called the “holder in due course” who has the following rights and powers according to law:
- sue on the bill in their own name
- hold the bill free from any defect on its title from its prior parties
- can enforce payment against all parties liable on the bill
- be free from mere personal defences available to prior parties
- obtains a good and complete title to the bill even if it’s defective
- discharges the payor if the holder is paid even though the bill’s title is defective
What are the remedies under the Bills of Exchange Act?
The Bills of Exchange Act has some remedies whenever something goes wrong as to the bill or any negotiable instrument it governs. However, other illegal acts may be punishable by other laws, such as the Criminal Code. Asking for the help of a corporate finance lawyer may be the best thing to do in these cases.
Forgery of bills of exchange
One of the main problems arising out of these negotiable instruments is forgery. The Act says that if a signature in a bill is forged, it becomes inoperative and there is no right to retain or enforce payment as stated in the bill. An exception to this is when the person whose signature was forged cannot set-up the defense of forgery or lack of authority (e.g., because of their own negligence).
Lost bills of exchange
When a legal holder of a bill of exchange loses it before its due date, the law says that they can request for another bill from the drawer (the one who drafted the bill). The condition is that a security must be given to the drawer, which will indemnify the drawer against any person in case the lost bill is found again.
This article only covers some of the basics of the Bills of Exchange Act. As such, it’s still prudent to consult a lawyer to prevent any problems with these instruments or when a legal dispute arises out of it.
If you want to hire a lawyer for any problems with a bill of exchange or to know more about the Bills of Exchange Act, contact any of the Lexpert-ranked best corporate finance law firms in Canada.