This chapter deals with the concept of payment and introduces the fundamental distinction between payment made in discharge of money obligations and different forms of payment promise. The focus is on negotiable instruments and, in particular, on bills of exchange where the (intangible) right to payment is embodied in a tangible instrument. Students often find the law of negotiable instruments to be a set of dry, arcane and technical rules and question its relevance in commercial practice. It is the aim of this chapter to contribute to the understanding of its intricate contents and to clarify its historical and current commercial significance.

INTRODUCTION

Payment is essentially an act accepted in performance of money obligations. It is the outcome of a claim for debt, for a definite sum of money established in an agreement between the parties in return for the performance of an obliga-tion by one party to the other. All issues relating to payment depend on the terms of the obligations originally undertaken as amended and/or discharged according to subsequent mutual agreement by the parties.

With the exception of cash, various highly technical (statutory, contractual and market) rules govern the creation, processing, clearing and settlement of the payment instructions in the UK. An introductory discussion of payment methodologies or even a detour on the structure of clearing and settlement of the payment system is a complex exercise well beyond the scope of this chapter.

This chapter will, rather, highlight the distinction between payment and the acceptance of a payment promise and, in particular, the acceptance of a payment promise represented by a negotiable instrument. While it is the layman's view to characterise the transaction where the debtor gives their creditor a negotiable instrument as a ‘payment’ of the debt, a distinction has to be drawn from payment made in discharge of money obligations. This is because, in the case of a negotiable instrument, there is technically only a payment promise and the creditor is not allowed to sue the debtor until the maturity of the instrument: as will be clarified in the sections below, even if the creditor has taken the negotiable instrument the original debt still exists and their right on the underlying obligation is preserved.