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Bill of exchange


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bill of exchange -negotiable instrument

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Bill of exchange

  2. 2. Sec(5) of the NIA 1881 defines ‘ A bill of exchange is an instrument in writing containing the unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of certain person or to the bearer of the instrument.’ Thus bill of exchange is an order from the creditor to the debtor to pay a specified amount to a person mentioned therein.
  3. 3.  Mr. A purchased goods from B rs.1000  Mr. B purchased good from D rs.1000  Mr. B may order to Mr. A to pay rs.1000. Mr. D which will be nothing but a bill of exchange.
  4. 4.  There are three parties in a bill of exchange: 1. Drawer 2. Drawee 3. Payee
  5. 5. Drawer The maker of a bill of exchange is called the drawer. Drawee The person who is directed to pay is called drawee. Payee The person who will receive the money is called the payee.
  6. 6.  The drawer or payee who is in possession of the bill, is called the holder.  It is the holders duty to present the bill to the drawee for his acceptance.  The drawee signifies his acceptance by signing on the bill. After such signature the drawee becomes the acceptor.
  7. 7. The essential elements of a bill of exchange are more or less the same as the promissory note and are subject to the same formalities as regards date, place, stamp, signature etc. These essential elements are:  The instrument must be in writing.  The instrument must contain an order to pay, which is express and unconditional.  There must be in three parties, drawer, drawee, payee and they must be certain and definite individuals.
  8. 8.  The instrument must be signed by the drawer.  The amount of money to be paid must be certain.  The payment must be in the legal tender moneys of India.  The money must be payable to a definite person or according to the order.  It must comply with the formalities as regards date, consideration, stamp etc.
  9. 9. Rs.5000 Trivandrum 23-06-15 Three months after date, pay to Rajesh or order, the sum of rs.5000(five thousand rupees only) for value received. To Mrs. Jaya ‘Yamuna’ Trivandrum-23 stamp Sd Babu
  10. 10. 1. There are 2 parties, promisor and promisee in a promissory note while there are three parties, payee, drawer and drawee in a bill of exchange. 2. A promissory note is an unconditional promise to pay while a bill of exchange is an unconditional order to pay. 3. In a promissory note liability of the maker is primary and absolute while liability of the drawer of the bill of exchange is secondary and conditional.
  11. 11. 4. A promissory note cannot be made payable to the maker himself while the drawer and the payee may be the same in a bill of exchange. 5. A promissory note cannot be drawn payable to bearer while a bill of exchange can be so drawn provided it is not payable to bearer on demand. 6. Maker of the promissory note stands in immediate relation with the payee. Drawer of a bill in immediate relation with the acceptor and not the payee.
  12. 12. 7. promissory note cannot be drawn in sets. A bill can be drawn in sets. 8. presentment of a promissory note for acceptance and acceptance for honour are not necessary while they are necessary for a bill.