Absence of Consideration in the Law of Bills and Notes

Abstract

By the latter part of the sixteenth century the theory of liability on bills of exchange had been adapted to common law theory of contract so as to lie in assumpsit. In 1787 it was fully settled by the House of Lords that all “contracts in writing … [which are] merely written and not specialties … are parol” and require consideration. Promissory notes and bills of exchange fell into this category. Indeed, “bills and notes were contracts and being such there was no persuasive reason why the basis of liability on a bill or note should be any different from that on any other written contract for payment of money.” While there is no provision in the Bills of Exchange Act (“the Act”) directly to the point, it is well established indeed that consideration of “value” is needed for the creation of an obligation under a negotiable instrument. According to Chalmers, “where B, by way of gift, makes a note in favour of C, C cannot recover from B.”