On 19 November 2021, I had the privilege of being member of a PhD-jury at the Université de Bordeaux. Victor Le Breton-Blon defended his dissertation on the practice and legislation of bills of exchange in the port of Bordeaux, between 1673 and 1789. The dissertation provides a remarkable insight into how bills of exchange transformed into flexible negotiable instruments. In eighteenth-century Bordeaux bankers accepted bills of exchange after granting credit through their accounts; a line in a current account was combined with the reception of a bill. Bills were also drawn on bankers, and in that case the receiver of the bill was debited in their books. The combination of clearing and bills allowed for the flexible use of the latter.
In the later Middle Ages the bill of exchange had mainly been applied in reference to the contract ex causa cambii. The deliverer of funds received a bill from the drawer, which had to be paid at a later time, elsewhere, and in a different currency. This served to avoid the sending over of money, which was risky; with a bill of exchange the drawer could simply use prospective returns from sales of merchandise elsewhere as payment for the loan which he had signed in his place of residence. However, bills of exchange were inflexible instruments. For example, the drawee of the bill, that is the one indicated in the document as payor, had the right to refuse acceptance of the bill. In that case, the payee had to have drawn up a protest with a notary and with that protest seek payment from the drawer. Also the rights of holders were considered limited; usually, they were depicted as agents in a legal sense, not as “masters” or owners of the bill, even if they had received the bill in payment and not as agents of the deliverer of funds.
A medieval bill of exchange
Over the course of the sixteenth and seventeenth centuries, all this changed. Holders became legally entitled to payment by the drawee. Also, they had the right to pass the bill onto other parties, through endorsement. This was done by writing an order to the drawee, with the name of the new beneficiary, on the backside of the bill of exchange. These developments were happening throughout Europe, and in Bordeaux as well. And one could then assume that transnational and uniform customs of merchants were at play. However, at this point the dissertation of Victor Le Breton-Blon holds up a red flag. In fact, for the practices of endorsement in different areas of Europe different rules were devised. Some became consensual, whereas others adhered to a more abstracted approach. In the Low Countries, the passing on of bills of exchange triggered a stricter approach towards the liability of the drawee; the rights of new holders were protected such that the drawee could only raise a limited number of objections when being asked to pay out the bill. From a teleological perspective, this has commonly been depicted as the precursory stage of the bill of exchange as Wertpapier.
The (still) authoritative history of bills of exchange by Raymond De Roover
However, in Bordeaux, it seems that things went in the other direction. Due to the close relation to clearing, it was perfectly normal to allow for broad defenses against claims of payment. The previous deals and contracts, and how they had been honored, mattered greatly for determining who was liable for payment of a bill of exchange that was not accepted. And it may be that this approach was ‘Atlantic’: in the eighteenth century English common law acknowledged consideration for bills of exchange, which yielded similar outcomes as in contemporary Bordeaux. All this is very exciting, considering that bills of exchange circulated across borders; many bills were drawn or paid in foreign banking centers. The question is then how transnational mercantile practices were combined with this divergence. Was clearing so flexible that it mitigated these legal differences? Or were the rules referring to abstraction merely existing on paper? Are researchers missing something here? All this triggers questions on the national nature of finance in eighteenth-century Europe and path dependency. An existing, rather unwieldy arrangement such as the bill of exchange was kept, but adjusted, even to the point that rules once considered fundamental were changed.
Le Breton-Blon, V., La lettre de change: la théorie face à la pratique bordelaise de la seconde modernité (1673-1789), PhD dissertation Université de Bordeaux.
De ruysscher, D., “Innovating Financial Law in the Early Modern Netherlands and Europe: Transfers of Commercial Paper and Recourse Liability in Legislation and Ius Commune (Sixteenth to Eighteenth Centuries)”, European Review of Private Law 19 (2011), 505-518.