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The Nature of a Negotiable Instrument*
Published online by Cambridge University Press: 16 February 2016
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The English Bills of Exchange Act—which is the source of legislation on negotiable instruments in most of the countries formerly connected with the British Commonwealth of Nations, including Israel's Bills of Exchange Ordinance—has been described as “the best drafted Act of Parliament ever passed. That explains why most of the problems which have come before the courts have been resolved within the strict framework of the law, through the application of one or another of the provisions of that Act. Those provisions can be regarded as amply covering the common commercial situations with which the world of finance is today familiar. This state of affairs has clear advantages; but, at the same time, it has its negative consequences too. Since the enactment of the Act in 1882, the courts—and, following in their footsteps, a majority of legal scholars—in the common law countries have ceased to give any thought to the theoretical nature of the negotiable instrument.
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1 For a list of those countries see the writer's article: “The Uniform Commercial Code—Commercial Paper: An Outsider's View” (1968) 3 Is.L.R. 7, 8Google Scholar.
2 1 L.S.I. [N.V.] 17.
3 Mackinnon L.J. in Bank Polski v. K.J. Mulder & Co. [1942] 1 K.B., 497, 500; and see also Sussmann, , The Law of Bills of Exchange (6th ed., 1983, in Hebrew) 8Google Scholar. Much the same has been said of the American Negotiable Instrument Law, which followed the English legislation: see Llewellyn, , “Meet Negotiable Instruments”, (1944) 44 Colum. L.R., 299, 300CrossRefGoogle Scholar, who writes—“…a job well designed and sweetly drafted… each word… counts”. This is very much of an exaggeration. Eight years after the drafting of the English Bills of Exchange Act, Chalmers himself remarked that if he could do the work over again “(he) certainly could do it better and should profit by past experience”: see the Introduction to the 11th ed. of his book on Bills of Exchange, (1947) xxxviiGoogle Scholar. And for a piercing criticism of the Law see Chafee, , “Remarks on Restrictive Indorsements,” (1945) 58 Harv.L.R. 1182, 1191CrossRefGoogle Scholar; see also the writer's article, op. cit., supra n. 1.
4 Chalmers, the draftsman of the English Act remarks, with a considerable measure of pride, that “As regards particular cases which arise, it is seldom necessary to go beyond the Act itself”: see the Introduction to the 3rd ed. of his book, p. 43. In England, it is true, the number of cases on negotiable instruments has been very small in recent years. This is not so in Israel. The Supreme Court devotes quite a lot of its time to this subject and the number of decisions on negotiable instruments is not much smaller than on torts. One of the reasons for this would seem to be the unstable economic situation in Israel, which presses debtors on a bill to raise many curious arguments in their endeavours to defend actions and avoid payment.
5 One notable exception is Prof. Chafee who, in a number of articles has made a considerable effort to trace out the theoretical basis of the negotiable instrument: see the articles cited in n. 3 supra and infra n. 8.
6 In vain one tries to find general principles and a basic theory on negotiable instruments in the work of Byles and Chalmers (England), or Riley (Australia), or Falconbridge (Canada). Worthy of mention are Cowen's, The Law of Negotiable Instruments in South Africa, (4th ed., 1966)Google Scholar, Britton's, Bills and Notes, (2nd ed., 1961)Google Scholar and Sussmann's, The Law of Bills of Exchange, (6th ed., 1983)Google Scholar. While these writers do not devote special chapters of their books to the formulation of a general theory, such a theory does clearly emerge from their exposition of various issues.
7 For example — the cable transfer, which takes the place of the negotiable instrument in international trade.
8 Chafee, , “The Reacquisition of a Negotiable Instrument by a Prior Party”, (1921) 21 Colum. L.R. 538CrossRefGoogle Scholar.
9 While the term “negotiable instrument” is used here, this article is, in fact, confined to an examination of those categories of negotiable instrument which are regulated by the Bills of Exchange Ordinance. However, what is said is, for the most part, equally true of all the other categories of negotiable instruments as well.
10 The most significant secondary characteristics of the negotiable instrument are these: firstly, the holder may sue on it in his own name without having to join the transferor as a party to his suit (sec. 37 (1) of the Ordinance); secondly, there is a presumption of law that every party whose signature appears on a bill has given value for it (sec. 29 (a) of the Ordinance) and that every holder has acquired it in good faith (sec. 29 (b)). If someone contends that an instrument was not acquired for value or in good faith the burden of proof falls on him.
11 See Cowen, op. cit. supra n. 6 at 3; Jacobs, , The Law of Bills of Exchange, (4th ed., 1943) 31Google Scholar.
12 The term “give” is used here rather than the term “transfer” because it is not universally accepted that the transfer of the instrument amounts to a transfer of the obligation as well. Some jurists hold that the transfer of the instrument creates a direct link between the debtor and the transferee, so that the rights of the latter are original, not transferred rights: see Bullard v. Bell (1817) Mason 243; Minet v. Gibson (1789) 3 T.R. 481; Aigler, , “Commercial Instruments: The Law Merchant and Negotiability” (1924) 8 Minn. L.R. 361Google Scholar; Kadirgamer, , “The Problem Promissory Note: A Question of Estoppel” (1959) 22 Mod. L.R. 146, 161Google Scholar.
13 These are defined in sec. 28 of the Bills of Exchange Ordinance with regard to the status of holder in due course.
14 Free from equities of prior parties means that in the hands of the holder in due course the bill is “cleaned”—that is to say released from any defects of title of prior parties and from personal defences available to prior parties. Justice Sussmann draws a distinction between formal negotiability (transferability) and substantive negotiability (the capacity to be acquired free from equities): see Sussmann, op. cit. supra n. 3 at 250.
15 See Master v. Miller (1791) 4 T.R. 320; Foster v. Dawber (1851) 6 Exc.R. 839; Hansard v. Robinson (1827) 7 B & C 90.
16 In Israel there is now the Transfer of Obligations Law of 1969, (23 L.S.I. 277) whereby “The right of a creditor, including a conditional or future right, is capable of being transferred without the consent of the debtor, unless its transferability is negated or restricted by law, by the nature of the right or by agreement between the debtor and the creditor” (sec. 1(a)).
17 In particular with regard to notification of the debtor. Transfer of a bill in accordance with mercantile custom is called negotiation. Negotiation is defined in sec. 30 of the Ordinance.
18 The accepted policy of the law of negotiable instruments is to achieve a state of affairs in which the negotiable instrument is, as far as possible, equivalent to money—see Sussmann, op. cit., p. 7: “It will be seen, then, that the bill is like money: it serves as a kind of private currency, though—unlike real money—it is, indeed, not legal tender and, accordingly, no one is obliged to accept it in payment of a debt. However, if someone does agree to accept a bill he is in a similar position to a person who receives ready money and, in hearing actions on bills, the courts have repeatedly stressed the need to treat the holder as if he has money. The bill is considered equivalent to money and it serves as a means of increasing credit”. See also Kadouri v. Heller (1964) (I) 18 P.D. 144; Ben Dror v. Botnim Ltd. (1960) 14 P.D. 1401; Master v. Miller (1791) 4 T.R. 320; Burchfield v. Moore (1854) 23 L.J.Q.B. 261.
19 See Ford v. Hopkins (1701) I Salk 283, 284; Mead v. Young (1790) 4 T.R. 28; Penny v. Innes (1834) I CM. & R. 439.
20 For all the rights are, of course, in personam. The chattel is not the subject of the right—only its object.
21 Sec. 23 (a) of the Ordinance.
22 Sec. 30(d) of the Ordinance. See also sec. 34(a) whereby a restrictive indorsement is “a mere authority to deal with the bill as thereby directed and not a transfer of the ownership thereof”.
23 See, inter alia, secs. 28, 35, 37.
24 Britton, op. cit., supra n. 6 at 119.
25 See Ames, , Law of Bills and Notes (1894) 748Google Scholar: “No unauthorized transfer of dishonored paper will deprive the true owner of his title; a dishonored bill or note resembling in this respect an ordinary chattel”.
26 Ashurst v. The Official Manager of the Royal Bank of Australia (1856) 27 L.T. 168: “I do not think it correct to say that after maturity it becomes like a mere chattel, for the negotiability continues in all its strictness. In those cases, two things are to be considered. Generally, a chose of action is not assignable; but, with regard to negotiable instruments, as bills and promissory notes, a different rule obtains, and they are negotiable by delivery. But the question of negotiability is different from the question of title. As to that, the party taking the instrument during the currency of it may acquire a better title than the transferor had, but, when it is overdue, it comes disgraced into the hand of the transferee, and that principle does not apply”.
27 Chalmers, , A Digest of the Law of Bills of Exchange (13th ed., 1964) 133Google Scholar: “A bill is a chattel; therefore it may be transferred as a chattel”; Willis, , The Law of Negotiable Securities (5th ed., 1930) 28Google Scholar: “The true owner of a negotiable instrument has all the powers of the owner of any property”.
28 Including by way of donatio mortis causa: see Chalmers, op. cit., p. 134.
29 If it is intentionally destroyed, it ceases to be a negotiable instrument. All that is left is the ownership of its worthless remnants; the obligations embodied in it are discharged (sec. 63(a) of the Ordinance). On the other hand, if the instrument is destroyed unintentionally, the obligations embodied in it continue to be binding, even though the instrument itself no longer exists as a chattel.
30 On the results of the alteration see sec. 64 of the Ordinance.
31 A person may be the owner of a negotiable instrument, even if the obligations embodied in it have been discharged. In that case, the instrument itself is of great importance as evidence of the discharge: see Hansard v. Robinson (1827) 7 B & C. 90, 94: “The acceptor paying the bill has a right to the possession of the instrument for his own security, and as his voucher and discharge pro tanto of his account with the drawer”.
32 whether actual or constructive possession; cf. the definition of “delivery” in sec. 1 of the Ordinance.
33 The rule that the general law of conversion applies to the conversion of negotiable instruments as well has deep roots in English law—see: Anonymous (1698) I Salk 126Google Scholar; Goggerly v. Cuthbert (1806) 2 B. & P.N.R. 170; Alsager v. Close (1842) 152 E.R. 600; Lowell v. Martin (1853) 4 Taunt 799; Smith v. Union Bank of London (1875) L.R. 10 Q.B. 291, 295; Lloyds Bank v. Chartered Bank of India, Australia and China [1929] I K.B. 40, 55–56.
34 The court can, at its discretion, order a person liable in conversion to pay the sum due on the instrument and retain the instrument itself. On paying, he becomes its owner.
35 See Wookey v. Pole (1820) 106 E.R. 839, 846: “Bills of exchange also are often made the subject of sale”. However, not every negotiation constitutes a sale as well. That depends on the intention of the parties. In the case of negotiation for collection, for instance, the person negotiating the instrument remains the owner of it. A distinction must also be drawn between sale of an instrument and payment of it.
36 Insofar as bills payable to bearer are concerned, part of that general law is established in sec. 59 of the Ordinance: see Falconbridge, , Banking and Bills of Exchange (6th ed., 1956) 784Google Scholar; Chalmers, op. cit., at 194. There are no special provisions in the Ordinance on the liability of the seller in the case of bills payable to order, and the accepted view is that the general law applies: see Sussmann, op. cit., at 191: “The indorser's liability under sec. 55 (b) (1) of the Ordinance, is meant to add to, not detract from, the liability of the seller and there are no reasonable grounds for exempting him therefrom”. The general law of sale—now regulated in Israel by the Sale Law, 1968 (22 L.S.I. 107)—can be applied without difficulty to the sale of a negotiable instrument. The fact that, under sec. 4(b) thereof, “The provisions of this Law shall apply where no other law contains special provisions as to the matter in question” does not prevent the application of the Sale Law, for there are no other provisions on the matter in question in the Bills of Exchange Ordinance. The Ordinance deals with the negotiation of a bill, not its sale.
37 The instrument is a bill despite the fact that the drawer's signature is forged. There are several reasons for this: in the first place, it is the bill of the forger himself, who may be held liable on it; secondly, in the relations between indorsor and indorsee, the indorser is estopped from arguing that the drawer's signature is forged (sec. 55(b) of the Ordinance). See the writer's article, “Forgery in the Drawing of a Cheque: Aims and Means in Distribution of the Risk between Banker and Customer” (1969) 1 Mishpatim 134, 137Google Scholar.
38 The remedies afforded by the law of sale may, indeed, prove to have certain advantages over those provided for in the Bills of Exchange Ordinance, for as Sussmann rightly observes: “The practical advantage of this liability is that the holder does not have to wait until the bill is dishonoured; nor do his rights on it depend upon his having presented the bill, protested it and given notice of dishonour” (op. cit., at 191). If the instrument is sold by a representative within the terms of his authority, but signed in his own name only, he alone is liable on it (sec. 25 of the Ordinance), whereas, under the general law of sale, it is the principal who is liable, since the representative drops out of the picture”.
39 See Britton, op. cit., at 182, 646; see also London & Bombay Bank, v. Norraway (1872) L.R. 15 Eq. 93.
40 See Paget, , Law of Banking (9th ed., 1982), 273Google Scholar.
41 Kupat Aliyah, Agudah Shitufit Le'Ashrai Ve'Hisahon Ltd. and Others v. Kirstein (1963) 17 P.D. 2282.
42 See Britton, op. cit., at 322.
43 Such as theft: see Britton, op. cit., at 119.
44 See Byles, , Bills of Exchange (24th ed., 1979) 5Google Scholar.
45 Sibree v. Tripp (1846) 15 M. & W. 23: “It is admitted that, if there had been an acceptance of a chattel in satisfaction of a debt, the court would not examine whether that satisfaction was a reasonable one, but merely whether the parties came to that agreement; and the acceptance of a negotiable security appears to me to be of the same nature”.
46 Even when the obligations embodied in an instrument have been discharged, the instrument itself still has a certain value: it provides proof that payment has been made. Accordingly the person who has paid is entitled to demand that it be delivered up to him (sec. 51(d) of the Ordinance); if the payee refuses to deliver up the instrument, he can be made to do so in an action of conversion: see Goggerley v. Cuthbert (1806) 127 E.R. 589. There is, indeed, no intention of suggesting here that an instrument in which the drawer's signature is forged is a worthless piece of paper that cannot be sued for in conversion; but see Adir v. Municipality of Holon (1964) (II) 18 P.D. 463.
47 See Wookey v. Pole (1820) 106 E.R. 845: “Like them (bills), it (exchequer bill) is neither valuable nor useful in itself, as goods and chattels, such as a horse, a book, a picture, or a pipe of wine: it is valuable only as entitling the holder to receive, at some future time, a certain sum of money, which is a value precisely of the same nature, as the value of a note or bill”.
48 Sussmann, in his book, remarks that “the idea of turning an obligation into a chattel, thereby endowing a man's obligation with the natural qualities of a chattel, is the underlying basis of negotiability” (op. cit. at p. 8). That is true from an historical point of view, but not necessarily so from an analytical point of view. One can discuss negotiable instruments without having to refer to the general law applicable to chattels. It would be more accurate in this case to speak of a “negotiable obligation.” (ibid.).
49 See Wookey v. Pole (1820) 106 E.R. 839.
50 Sussmann, op. cit., at 4.
51 Cf. Douglas Valley Finance Co. Ltd. v. Hughs (Hiters) Ltd. [1966] 3 All E.R. 214 and a note in (1967) 23 HaPraklit 13Google Scholar.
52 Gilmore, , “The Commercial Doctrine of Good Faith Purchase”, (1954) 63 Yale L.J. 1057, 1063CrossRefGoogle Scholar.
53 Ibid.
54 Minet v. Gibson (1789) 3 T.R. 481: “(a bill) creates a debt or duty by its own proper force.”
55 On the question whether the instrument constitutes an absolute discharge of the initial transaction, or merely a condition discharge, see Sussmann, op. cit., at 142.
56 When the instrument has been negotiated to B by A, B may have a third cause of action based on the sale of the instrument.
57 This difference is reflected, inter alia, in the following points: 1. There is a presumption that the instrument has been given for value and in good faith. No such presumption exists in the case of an obligation not based on a negotiable instrument. 2. There are separate provisions as to the limitation of actions on negotiable instruments. 3. The rate of exchange for instruments expressed in foreign currency is different from the rate for other obligations. 4. There are special procedures for suing on a negotiable instrument and levying payment.
58 Sec. 20(a) of the Ordinance.
59 See Halifax v. Lyle (1849) 3 Exch. R. 446; Jones v. Broadhurst (1850) 9 C.B.D. 173 and Batt, , The Law of Negotiable Instruments (1931) 9Google Scholar, who states that “The lawyer approaches the negotiable instrument from the angle of contract, for the legal right to recover and the liability to pay, the sum expressed by the instrument to be payable rests upon the actual or implied promise to pay arising in the transaction embodied in the instrument”.
60 See Chitty, , Contracts (23rd ed., 1968) 10Google Scholar; Corbin, , Contracts (1963) Vol. 1, p. 52Google Scholar.
61 In saying that the bill is a contract under which only one party is liable we do not mean that only one obligation arises on it, for—as we have already seen—there are as many obligations on a negotiable instrument as there are signatures. What is meant is that, as against the obligation of one party to the instrument, there is no corresponding obligation of the beneficiary based on the instrument.
62 Sussmann, in his book, observes: “What is known in English law as a simple contract is created by a “consensus of minds” and can be executed if consideration has been given; but, in the case of a contract on a bill, there is a third element, in addition to those two elements…” (op. cit. at 20). In the writer's opinion, the “consensus of minds” demanded by the general law of contract is not an element of the law of negotiable instruments. Thus, for example, under the general law of contract, the drawer's signature of acceptance would have to be made after the drawer's offer and would have to accord with that offer in every respect. But this is not so under the law of negotiable instruments; a bill may be accepted either before or after it has been signed by the drawer (sec. 17(a) (1) of the Ordinance) and acceptance may be qualified (sec. 18(b)). The fact that the obligation on a negotiable instrument is unilateral also explains why, in English law, a person without capacity to contract can have rights on a bill. A bill made to the order of such a person does not give rise to a bilateral contract, which would—in any case—be void. The signing of a negotiable instrument does not create a bilateral contract—only a unilateral undertaking. Of course, in saying that there is no need for a “consensus of minds” in the law of negotiable instruments, we do not mean that the agreement expressed by the instrument does not have to be valid—that is to say, free from mistake, duress, fraud, etc.
63 It would seem, then, that the obligation on a negotiable instrument is not, in itself, by way of a debt, within the meaning of that term in English law. Very often the obligation is conditional, in the sense that the liability of the person signing the instrument depends upon the implementation of certain future actions on the part of the holder. Of course, where the holder has already performed his part of the transaction (executed consideration) and the instrument has fallen due, a debt does arise: see Levontin, , “Debt and Contract in the Common Law” (1966) 1 Is.L.R. 60, 88Google Scholar.
64 A bill is not a contract under seal: see Minet v. Gibson (1789) 3 T.R. 481.
65 Accordingly, when a negotiable instrument is burnt or lost, the obligation it embodies is not extinguished.
66 Sec. 21(a) of the Ordinance. It is, therefore, difficult to explain the decisions of English and Israeli courts holding that, while a municipal corporation can carry out certain transactions, it has no power to finance them by means of negotiable instruments. If a municipal corporation has the capacity to incur liability under the initial transaction, why does it not have the capacity to incur liability on a bill in order to pay for that transaction? As we have seen, capacity in the case of a party to a bill is the same as in the case of a party to a contract. True, the bill constitutes a separate contract, but the Ordinance expressly stipulates that the general rules as to capacity apply to this separate contract as well. There is, therefore, no justification for creating special rules of capacity with regard to negotiable instruments. The argument that to give a municipal corporation power to incur liability as a party to a bill will, in effect, mean the end of the ultra vires doctrine, cannot be sustained; the absence of capacity can always be regarded as a proprietary defect. Nor need one fear the abuse of the power to draw bills on the part of municipalities; proof of this lies in the fact that the legislator in Israel has seen fit to override the case law on this matter—primarily, the rule laid down in Noy v. Municipality of Hadera (1958) 12 P.D. 353—and give them that power.
67 See Foster v. Mackinnon (1869) L.R. 4 C.P. 704 and Lewis v. Clay (1898) 77 L.T. 653. See also, Schweiz v. Sandor (1965) (II ) 19 P.D. 113.
68 See the writer's note “The Requirement of Consideration for Bills and Notes in Israel” (1967) 2 Is.L.R. 499Google Scholar.
69 See Sussmann, op. cit., at 295.
70 Chalmers, op. cit., at 233.
71 Falconbridge, op. cit., at 636: “a negotiable instrument may be assigned in accordance with the rules governing the assignment of debts or chose in action”. Chalmers, op. cit., at 133: “a bill is a chose in action, therefore it may be assigned as a chose in action”.
72 See Sussmann, op. cit., at 200: “A bill, like any other right, can be transferred in the same way as a debt under the Debt (Assignment) Ordinance”.
73 Sec. 10 of the Transfer of Obligations Law, 5729–1969. Under the opening words of that section “The provisions of this Law shall apply where no other law contains special provisions applicable to the matter”. This provision in itself need not be taken to exclude the application of the Law to the transfer of obligations on a negotiable instrument, for there is no provision in the Bills of Exchange Ordinance (an “other law”) on the transfer by way of assignment of obligations on a negotiable instrument (“the matter” in question).
74 Sec. 58 of the Ordinance.
75 Cf. Levontin, “Debt and Contract in the Common Law”, op. cit., supra n. 63, at 82.
76 See Byles, op. cit., supra n. 44, at 366.
77 There is, of course, a difference between the interest due under sec. 58 of the Ordinance and the interest on the bill itself, which is part of the amount of the bill and not compensation at all. That interest must also be distinguished from the interest awarded by the court under the Adjudication of Interest Law, 5721–1961 (15 L.S.I. 214).
78 See Walker v. Barnes (1813) 3 Taint. 240.
79 See Upton v. Lord Ferrers (1801) 5 Vesey 801.
80 See Sussmann, op. cit., at 20.
81 Factory Investment (Pty) Ltd. v. Ismails, 1960 (2) S.A. (T) 10 at p. 14: “A bill of exchange or promissory note is but a written contract with the additional feature of being negotiable”.
82 See Foster v. Dawber (1851) 6 Exch. Rep. 839.
83 It is doubtful whether this illustration is still pertinent in Israel, in view of the provisions of the Transfer of Obligations Law.
84 B does not have to deliver the bill to C for that purpose, so the bill remains in B's hands.
85 See Sheldon v. Parker (1874) 3 Hun. New York R. 498; Aulton v. Atkins (1856) 18 C.B. 249.
86 But it is not speciality; see Yeoman v. Bradshaw (1696) 12 Mod. Rep. 107.
87 These are stipulated in sec. 3 of the Ordinance with regard to bills of exchange and in sec. 54 with regard to promissory notes. A cheque is a bill of exchange drawn on a banker, payable on demand (sec. 73 of the Ordinance).
88 The validity of some contracts—for example, a contract of insurance—depends upon delivery of the document. The practice is that an insurance policy, does not come into effect until it is delivered to the insuree.
89 Sec. 20(a) of the Ordinance.
90 See Sussmann, op. cit., at 20 and Britton, op. cit., at 332; see also Abrey v. Crux (1869) L.R. 5 C.P., 37, 42.
91 Sec. 26(a) of the Ordinance.
92 Sec. 26(b) of the Ordinance. For example: A draws a bill to the order of B, without receiving value for it. B negotiates it to C for value. C, in turn, negotiates it to D without receiving, value for it. D has rights on the bill against A (a special rule of the law of negotiable instruments) and against B (under the general law of contract).
93 Sec. 29(a) of the Ordinance.
94 Secs. 38–52 of the Ordinance.
95 See Levontin, , “Foreign Money Loans: The Rate of Conversion,” (1966) 1 Is.L.R. 250–259Google Scholar.
96 Sec. 58 of the Ordinance.
97 Unless an intention to waive or withdraw can be presumed; and even this is not sufficient, because there is the problem of consideration.
98 Sec. 64 of the Ordinance. The avoidance is not valid against the party who has himself made, or authorized or assented to the alteration, or against subsequent indorsers. And if the bill comes into the hands of a holder in due course “(he) may avail himself of… (it) as if it had not been altered and may enforce payment of it according to its original tenor”. (ibid.).
99 Secs. 60–64 of the Ordinance.
100 For example on the question of waiver: see Foster v. Dawber (1851) 6 Exch. Rep. 839; and, in general, Abrey v. Crux (1869) L.R. 5 C.P. 37, 44.
101 See Aigler, , Bills and Notes (1962) 20Google Scholar: “The law of negotiable paper is an interesting and sometimes confused, combination of contract and property principles”.
102 See Batt, op. cit., supra n. 59 at 10: “In the case of a negotiable instrument, though the obligation to pay is a chose in action belonging to the person entitled to enforce it, yet that obligation is evidenced by a document or writing … again the law gives expression to a perfectly natural assimilation of ideas and identifies the writing with the obligation created or evidenced thereby, and so the negotiable instrument partakes largely of the characteristics of a chose in possessions for the very reason that the writing can be transferred by delivery just as a chose in possession can pass from the hands of its transferor to those of its transferee”.
103 See Goysky v. Meir (1962) 16 P.D. 595.
104 The term “bill” itself takes on different meanings in different contexts—depending upon whether one is referring to it as an obligation, a chattel or a negotiable instrument. When one says that the bill has been paid, one means the obligation it embodies—not the chattel: see Sussmann, op. cit., at 20. Similarly, the provision of sec. 64 of the Ordinance, that a bill which is materially altered is avoided, means that the obligation embodied in it—not the bill itself as a chattel or negotiable instrument—is avoided. In Avadi v. Attorney General (1965) (II) 19 P.D. 519 it was said: “A cheque is a bill of exchange in which there is no acceptance and when A draws a cheque payable to himself he has not made a bill until he delivers the instrument to someone else… There is no negotiable instrument within the meaning of the Bills of Exchange Ordinance, until the instrument has been indorsed. Therefore, it is not a bill to all intents and purposes”. That dictum is not accurate. A cheque payable to the drawer is a bill, within the meaning of that term in the Ordinance; but it is a chattel which does not embody an obligation.
105 As we have already seen, the connection is not particularly strong, since the obligation can be transferred according to the general rules of assignment without transferring the chattel itself—that is to say, the obligation can thereby be separated from the chattel. The connection between the obligation and the chattel in the case of a negotiable instrument is weaker than that between a secondary obligation (guarantee) and a principal obligation, where the rule is that transfer is not possible: see Pinkus v. Export Bank Ltd. (1967) (II) 21 P.D. 571–574.
106 See Sussmann, op. cit., at 20.
107 That is the position under the English Bills of Exchange Act and the Geneva Uniform Law on Bills of Exchange, on which the laws on negotiable instruments in most of the countries of Europe and South America are based. In contrast, the American law on the subject, the Uniform Commercial Code, has considerably extended the framework and embraces a number of provisions from the law of negotiable instruments in the broad sense—for instance, rules on the conversion of negotiable instruments. The latter development is not the result of any systematic planning; for criticism of this approach, see the writer's article “The Uniform Commercial Code—Commercial Paper: An Outsider's View” (1968) 3 Is.L.R. 184, 222Google Scholar.
108 But see infra n. 117.
109 On this distinction see Falconbridge, op. cit., at 428, and the writer's article “The Requirement of Consideration for Bills and Notes in Israel” (1967) 2 Is.L.R. 499Google Scholar.
110 The expression “the law of negotiable instruments in the broad sense” is not a successful one, since it would appear to include the law of negotiable instruments in the strict sense as well, whereas what is meant here is only the law dealing with the negotiable instrument as a chattel and an obligation.
111 See Riley, , Bills of Exchange (2nd ed., 1964) 14Google Scholar: “[The Act] was not intended to be a scientific code, complete and exclusive of [the law of bills of exchange]. It is more in the nature of a digest of the law on the subject. Thus the rules of the common law are preserved unless inconsistent with the express provisions of the Act, capability of parties and sufficiency of consideration are determined by the general law, and there is no provision as to property in bills and as to equitable rights … which must be governed by general law”.
112 It is interesting to compare the first edition of Chalmers' book, published in 1878, with the Act drafted by him in 1882. Whereas in the book there are more than 280 sections, the Bills of Exchange Act itself has only 100. Most of the sections in the book which dealt with the rules referring to the bill as a chattel or an obligation were omitted from the Act.
113 Sussmann, op. cit., at 19.
114 For example, the rule in Baxendale v. Bennett (1878) 3 Q.B.D. 531.
115 See sec. 59(b) of the Ordinance.
116 See Chalmers, op. cit., at 194; Falconbridge, op. cit., at 784.
117 The inclusion of the provisions of sec. 59 within the framework of the Bills of Exchange Ordinance is likely to create difficulties. Thus, there may be a difference between the law of sales for the purposes of sec. 59, which is based on the English law of sales—and Israel's Sale Law of 1968. There is no justification for applying a special law of sale to bills payable to bearer. Moreover, the sale of a bill payable to order is governed by the Sale Law, not by the provisions of sec. 59. If the law of sales under that section is, indeed, different from the law under the Sale Law, then there will be a lack of harmony between the rules governing the sale of a bill payable to bearer and those governing the sale of a bill payable to order. Such a result is unreasonable.
118 The rule in Price v. Neal: see Adir v. Municipality of Holon (1964) (II) 18 P.D. 463, 471 — “It follows that a claim for restitution of money received by virtue of a negotiable instrument, such as a cheque, is not like a claim for restitution of money gained by any other form of enrichment”.
119 See the writer's article in (1968) 24 HaPraklit 403Google Scholar.
120 see Falconbridge, , “The Bills of Exchange Act in Quebec” (1942) 20 Can.B.R. 723Google Scholar; Nicholls, , “The Bills of Exchange Act and Prescription in the Law of Quebec” (1937) 15 Revue du Droit 396Google Scholar; Nicholls, , “The Bills of Exchange Act and Novation in the Province of Quebec” (1938) 16 Can.B.R. 602Google Scholar.
121 See Falconbridge, op. cit., supra n. 36 at 435.
122 See Guy v. Paré (1892) I Que. S.C. 443.
123 See Perrault, , Traité de Droit Commercial, (1940) Vol. 3, p. 1150Google Scholar.
124 This is Falconbridge's own opinion: op. cit. supra n. 36, at p. 426 et seq.
125 On the position in Australia see Stak Motor Ploughs Ltd. v. Forsythe (1932) 48 C.L.R. 128, 134 and in India: State of Bombay v. Narothamdas (1951) S.C.R. 51, cited in Khergamvala, , The Negotiable Instruments Act (13th ed., 1966) 3Google Scholar.
126 This article was not abolished, but it no longer obliges the reference to English Law.
127 See Sussmann, op. cit., at 21. It is difficult to grasp this passage of the book, in view of the approach Sussmann takes in Bohen v. Simon (1963) 17 P.D. 167.
128 ibid.
129 Development Authority v. Emet Binyan (1964) (I) 18 P.D. 491.
130 Alverance v. Smetterling (1950) 4 P.D. 573.
131 Zapovitz v. Reisel (1962) 16 P.D. 1833.
132 See the writer's article in (1968) 24 HaPraklit 403Google Scholar.
133 See Rappaport v. Atzmon (1968) (II) 22 P.D. 51.
134 These matters are discussed at length in the author's book, The Nature of the Negotiable Instrument, op. cit., supra, on a chapter of which this article is based.