Definition
A letter of exchange is an archaic term for a bill of exchange — a written, unconditional order by one party (the drawer) directing a second party (the drawee) to pay a fixed sum of money to a third party (the payee) either on demand or at a specified future date. The instrument is negotiable, meaning it can be transferred to subsequent holders who may acquire rights independent of the original transaction.
The term itself is largely obsolete in modern commercial and legal practice, having been wholly displaced by "bill of exchange" in both legal drafting and statutory codification. The two terms are synonymous without qualification.
Common Confusion
LETTER OF EXCHANGE vs. BILL OF EXCHANGE: These are the same instrument. "Letter of exchange" is the older form of the term and appears with some frequency in historical documents, colonial-era records, mercantile correspondence, and early case law. Researchers encountering "letter of exchange" in a historical source should treat it as a bill of exchange and apply the governing doctrine accordingly. Neither Black's nor Rapalje & Lawrence suggests any substantive distinction between the two — both entries simply cross-reference bill of exchange without elaboration.
LETTER OF EXCHANGE vs. LETTER OF CREDIT: These are distinct instruments and are not interchangeable. A letter of credit is a bank's undertaking to honor drafts or demands for payment upon presentation of specified documents, typically used in international trade financing. A bill of exchange (letter of exchange) is the underlying payment order itself. The two may appear together in a single transaction, which compounds the confusion in historical sources.
LETTER OF EXCHANGE vs. PROMISSORY NOTE: A bill of exchange involves three parties and is an order to pay. A promissory note involves two parties and is a promise to pay. The structural difference is fundamental to negotiable instruments law, though in practice historical sources sometimes blur the boundary.
Why It Matters in Research
The primary research value of this entry is navigational: knowing that "letter of exchange" and "bill of exchange" are synonymous allows researchers to correctly index and interpret historical sources without assuming a distinction that does not exist.
Several practical implications follow:
Historical corpus searches require both terms. Pre-nineteenth-century legal documents, merchant records, and early American case reports frequently use "letter of exchange" where a modern drafter would write "bill of exchange." A corpus search limited to one term will miss the other. Law Mind researchers working in colonial law, admiralty, or early commercial law should run searches under both terms.
The term drops out of legal usage unevenly. "Letter of exchange" persisted longer in English sources than in American ones, and longer in commercial correspondence than in court opinions. Dating the disappearance of the term in a particular jurisdiction or document type can itself be an indicator of the source's provenance and period.
Statutory codification accelerated the consolidation. The English Bills of Exchange Act 1882 and the American Negotiable Instruments Law (adopted across U.S. states beginning in the 1890s) standardized "bill of exchange" as the operative term. Post-codification uses of "letter of exchange" are typically antiquarian, informal, or translated from a foreign-language source.
Foreign-language sources introduce the term independently. In French, "lettre de change" (literally "letter of exchange") remains the standard term for a bill of exchange. Researchers working with translated French commercial documents, civil law materials, or Louisiana sources may encounter "letter of exchange" as a direct translation artifact rather than as a deliberate choice of English terminology.
Historical Dictionary Support
Both Black's Law Dictionary and Rapalje & Lawrence treat this entry as purely referential, providing no independent definition and directing readers immediately to "bill of exchange." This unanimity is itself informative: by the time these dictionaries were compiled, "letter of exchange" had no independent legal content and was preserved only as a historical cross-reference. Earlier legal dictionaries and glossaries — particularly those drawing on older English and continental mercantile sources — were more likely to define the term in its own right, reflecting the period when the two phrasings coexisted as live alternatives rather than as archaic and modern variants of the same concept.
The historical dictionaries do not address the foreign-language dimension or the colonial American usage patterns. Researchers relying solely on these sources for context will find only the bare equivalence, not the practical reasons the term survived as long as it did.
Jurisdictional Note
Louisiana merits particular attention. As a civil law jurisdiction with French legal heritage, Louisiana commercial law and legal literature used "lettre de change" and its English translation "letter of exchange" in ways that track French commercial law tradition rather than English common law nomenclature. Researchers working in Louisiana sources should be alert to this as a source of terminological divergence from other American jurisdictions.