The law relating to Bills of Exchange in Kenya is contained in the Bill of Exchange Act1. This statute is a carbon copy of the English Bills of Exchange Act, (1882). It codifies the law relating to bills of exchange.
Section 3(1) of the Bills of Exchange Act defines a Bill of Exchange as: 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 the bearer.

1. It is an unconditional written order i.e. Not a request.
2. Addressed by person to another
3. It must be signed by the person giving it
4. It demands payment of a sum certain in money.
5. The sum must be paid on demand or at a fixed or determinable future time.
6. The sum is payable to a specified person, his order or the bearer.

Parties to a bill of exchange are the drawer and the drawee. The drawer is the person who draws the bill demanding payment. The drawee is the person to whom the bill is drawn. This is person to pay the amount due. The person to whom the amount is paid the payee.

Bills of Exchange may be classified on the basis of: –
1. To Whom Payable: A bill may be bearer or order. A bearer bill is a bill payable to the holder or bearer of the instrument. An order bill is a bill payable to the order of a specified person.
2. Where drawn and a payable: An inland bill is a bill as bill drawn and payable within East Africa. Any other bill is foreign.
3. When payable:
a. Sight bill: – This is bill payable on demand
b. Usance bill: This is bill payable at a fixed or determinable future time.
4. Whether transferable or not: –
a. Transferable bill: – This is a bill which is capable of being negotiated by one person to another
b. Non-transferable bill: – This is a bill which contains a stipulation prohibiting transfer.
A bill drawn and signed by the drawer is referred to as draft and must be presented to the drawee for acceptance.

1. The bill maybe presented by the drawee or his agent-
2. It must be presented at a reasonable hour on a business day.
3. It must be presented to the drawee and if dead, to his personal representative.
4. If the drawee has been declared bankrupt, the bill must be presented to him or to his trustee in bankruptcy.
5. If trade custom and usage permits, it may be done thought the post.
6. However, presentation of a bill for acceptance will dispensed with if:
i) The drawee is a fictitious person.
ii) It cannot be effected even with the exercise of reasonable diligence.

This is the signification by the drawee of his assent to the bill. Acceptance of a bill may be general or qualified.
1. In General acceptance, the drawee accepts the bill in its tenor i.e. without any qualification.
2. Qualified Acceptance: This acceptance whereby the drawee modifies or varies the bill in various ways: –
a) Conditional: Where the drawee specifies a condition subject to which the bill is payable.
b) Partial: The drawee accepts to pay part of the sum.
c) Local: The drawee accepts to pay the bill at a specified place.
d) Time: The drawee changes the time of payment
e) Acceptance by some but not all drawers.
The drawer is not bound to accept a qualified acceptance. However, if he does, he is bound by its terms.
Once a bill is accepted, it becomes a proper bill, capable of being discounted or negotiated.
Discounting a bill: it is the receipt by the payee of the amount of the bill from a bank or financial institution less the discount for the unexpired duration. The bank becomes the payee.
Negotiation of bills: Under section 31 (1) of the Act, a bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee as the holder thereof.
A bill may be negotiable in 2 ways namely:

  • Delivery
  • Endorsement and Delivery
  • Bearer Bills are negotiable by delivery. Order bills are negotiable by endorsement and delivery.

This is the signing or executing a bill by a party for purpose of negotiating it to another. The party so doing is the endorser while the party to whom it’s endorsed is the endorsee.
Characteristics of an Endorsement
1. It must be written on the face of the bill, on its reverse side or on a copy where acceptable or slip of paper attached to the bill. This paper is referred to as an allonge.
2. It must be signed by the endorser
3. It must be an endorsement of the entire bill.
4. If payable to the order of two or more endorsers who are not partners, all must endorse unless either of them has authority to endorse in favour of all.
5. The endorsement may be blank, special, conditional or restrictive

Types of Endorsements
1. Blank: This endorsement which does not specify the endorsee. It converts an order
2. bill to a bearer bill.
Special: This is an endorsement which specifies the person to whom or to whose order, the bill is payable.
3. Conditional: This is an endorsement which either exempts the endorser from liability if the bill is dishonoured or makes payment of the bill subject to a specified condition.
4. Restrictive: This is an endorsement which prohibits further negation of the bill. It constitutes the endorsee as the payee who cannot negotiate the bill any further.

1. Holder for Value: This is a holder of a bill, who has provided valued consideration on it or who is deemed to have so provided the same.
2. Holder in due course: Under Section 29(1) of the Act, a person is deemed to be a holder of a bill in due course if he holds a bill which is: –
a. Complete and regular on the face of it
b. Before it is overdue
c. In good faith from and for value
d. Without notice of any previous dishonour
e. Without notice that the person who negotiated it to him had a defective title
3. Accommodating Party: Under Section 28 (1) of the Act, an accommodation party is person who has signed a bill of exchange as drawer, endorsee or acceptor without receiving value thereon but for the purpose of lending his name to another party. However, such party is liable to a holder for value.
4. Referee in Case of Need: Under Section 15 of the Act, a referee in case of need is a person whose name is inserted in a bill by the drawer or endorsed to whom the payee may resort to in the event of its dishonour by non-acceptance or non-payment.

1. A bona fide holder acquires a defect-free title
2. Right to sue on it in his own names
3. Right to negotiate the bill unless the lost endorsement is restrictive.

a) It is the duty of the drawer to present the bill to the drawee for acceptance
b) It is the duty of the payee to represent the bill to the acceptor for payment.
c) In the event of the dishonour of a bill, it is the duty of the payee: –
i) To notify the party the fact of dishonour
ii) To have the bill noted and or protested

On maturity of a bill, it must be presented to the acceptor for payment. Its presentation is governed by the following rules: –
a) If payable on demand, it must be presented within a reasonable time of acceptance or negotiation.
b) If payable in future, it must be presented on the date it falls due or within three days of grace.
c) It may be presented by the payee or his agent.
d) It must be presented to the acceptor at the agreed place i.e. his place of business or residence.
e) It must be presented to the acceptor, however, if dead to his personal representative.
f) If the acceptor has been declared bankrupt it must be presented to him or his trustee in bankruptcy
g) It must be presented at a reasonable hour on a business day
h) If trade custom or usage permits, presentation may be effected by post.
If on presentation, the amount is paid by or on behalf of the acceptor, the bill is discharged. However, presentation for payment maybe dispensed with if it is impossible to secure the same even with exercise of reasonable diligence. If the acceptor cannot be found or payment is refused the bill is said to be dishonoured.

A bill is said to be dishonoured if:-
1. Presentation for payment is exercised by law
2. Payment is refused.
It is the duty of the payee to notify the party liable the fact of the dishonour and to have it noted and or protested.

1. The notice may be given by or on behalf of the payee
2. It my be given in the agent’s or the payee’s name
3. The notice may be oral or written
4. If written it need not signed
5. It must be given within a reasonable time of the dishonour
6. Return of the dishonoured bill is sufficient notice.
7. It must be given at a reasonable time on a business day.
8. If effected by post it is effective when the letter is posted.

Once a bill is dishonoured, the payee must present it to notaries public who re-presents it to the acceptor for payment and if payment is refused, the notaries public indicates the date on the bill and later specifies the dishonour in his register by entering the words used by the acceptor in the refusal. This is referred to as Noting the Bill.

This is the formal declaration by notaries public attesting the fact of dishonour of a bill. It is conclusive evidence of the dishonour. A protest note must disclose and contain: –
1. The person for and against whom it is made
2. Reason for the protest
3. Date and Place of the protest
4. Particulars of the notaries public
The dishonoured bill or a copy thereof must be attached.

A bill of exchange is said to be discharged when all rights on it are extinguished. However, a party may still be held liable on it depending on the method of discharge.
A bill may be discharged in any of the following ways: –
1. Payment in due course: If the bill is paid by or on behalf of the acceptor at or after maturity, it is discharged and parties freed.
2. Acceptor – holder Maturity (Merger): If the acceptor of a bill becomes the payee of right, at or after maturity, the bill is discharged.
3. Renunciation or waiver: Under Section62 (1) of the Act, if the holder of a bill at or after maturity unconditionally and absolutely renounces his right against the acceptor,
the bill is discharged. The renunciation must be written and the bill must be returned to the acceptor.
4. Cancellation: Under Section 63 (1) of the Act, if a bill is intentionally cancelled by the payee or his agent, and the cancellation is apparent thereon, the bill is discharged. An unintentional cancellation does not discharge a bill.
5. Material Alteration: Under Section 64(1) of the Act, a material alteration on a bill discharges all the parties not privy to the alteration. Under Section 64 (2) a material alteration comprises a change in amount payable, time of payment, date and place of payment.
6. Non-presentation: Under Section 45(1) of the Act, the non-presentation of a bill for payment as prescribed by law discharges the drawer and endorsers.


KASNEB Revision kits and past papers with answers

(Visited 1,232 times, 1 visits today)
Share this:

Leave a Reply