Bill of Exchange

Definition:

A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instruments.

Essential Elements of a bill of exchange:

Writing: It must be in writing and may be in any language, and in any form. The provisions of promissory note discussed above as regards writing are applicable to a bill of exchange.

Parties: There must be three parties to the bill of exchange, for example, Drawer, Drawee and Payee. The person who draws a bill is called a “Drawer or Maker”. The person on whom the bill is drawn is called a ‘Drawee’ and the person to whom the money is to be paid is called a “Payee”

Payee: Section 7 of the Act defines, Payee as the person named in the instrument, to whom or to whose order the money is, by the instrument directed to be paid. It is not necessary that the three parties should be three distinct persons. One person can play the role of two, for example, one person may be the drawer and payee or drawee and payee acting in two different capacities. However, drawer and drawee cannot be the same person as the person cannot order him self the payment. There should, therefore, be at least two distinct persons. In any case, three parties must be pointed out in the bill with reasonable certainty. There may be joint drawers or joint payees, but the bill cannot be addressed to two or more dr6awees in the alternative.

Order to pay: The bill of exchange must contain an order by the drawer to the drawee to pay under any circumstance. The order must be imperative and not in the form of excessive request. Therefore, where the bill of exchange was drawn with the words: Please let the bearer have seven pounds and you will oblige, it was held that this is not a bill of exchange because it is a request and not an order. Simple request will, however, not invalidate the instrument. Only excessive politeness will not construe an order to pay and the instrument would be a bill of exchange.

Unconditional: The order in the bill must be unconditional, for example, payable under all events and circumstances. A promise or order to pay is not conditional simply because the time for payment of the amount or any installment thereof being expressed to be payable on the lapse of a certain period after the happening of a specified event which, according to the ordinary expectation of mankind, is certain to happen although the time of its happening may be uncertain. Conditional bill is invalid.

Signed: The bill must be signed by the drawer.
Person directed, for example, the drawee must be certain: The order to pay must be directed as a certain person. Certainly of the drawee helps the payee to present the bill for acceptance or payment to a certain person and also helps the drawee to know whether it is addressed to him or not. Drawee must be designated with reasonable certainty.

Money: The order must be to pay money only

Payee must be certain: It must be payable to a definite person or his order. The payee must be certain. Bill may payable to two or more payees jointly or in the alternative.

Certain sum: The sum payable must be certain. The sum payable may be certain although it includes future interest or is payable at an indicated arte of exchange, or is according to the course of exchange.

Stamping: Bill of exchange is chargeable with stamp duty.

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(1)

Rs 5000 Bombay,
Date: 1st March, 2005
Sixty days after aye pay to ABC or order the sum of five thousands rupees only for value received.

To,
PQR, Lentin Road, Bombay Signed
XYZ

Here XYZ is the drawer PQR is the drawee and ABC is the payee

——————————————————————————————–

(2)

Rs 5,000 Bombay,

Date:1stMarch 2005

Three months after date pay to ABC, or Order the sum of five thousand rupees for value received.

To,

PQR, Lentin Road, Bombay Signed
XYZ

——————————————————————————————–
(3)

Rs 5,000 Bombay

Date: 1st March, 2005

Thirty days after date pay to ABC, or bearer the sum of five thousands rupees only

To,

PQR, Lentin Road, Bombay, Signed
XYZ
——————————————————————————————–(4)

Rs 5,000 Bombay,

Date 1st March, 2005

One month after date pay to my order, the sum of five thousand rupees for value received.

To,
PQR, Lentin Road, Bombay Signed
XYZ

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  • Jesh Sahani

    nice answer…… and nice way to help for the student…..

    thnks….

  • Drrts

    very nice answer