You must know how a bill of exchange ordinarily comes into existence. It comes into being, when a trader decides to sell goods on credit. Suppose, A sells goods worth Rs. 800 to B, and allows him three months’ time to pay the price. A will them draw a bill on B in the following terms “Three months after date pay to my order the sum of Rs. 800 for value received”. After signing the bill, A will present it to B for acceptance. If B writes across the bill ‘ accepted’, it will indicate that B undertakes the liability to pay a sum of Rs. 800 within the time stipulated therein. Here A is the drawer, B is the drawee and after acceptance B will be the acceptor. 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 certain person to the bearer of the instrument (Section 4).
You should now try to understand the application of the points emerging from the said definition:
(i) The bill of exchange must be in writing. This point, we take it for granted, needs no further annotation.
(ii) There must be money to the payee. It is of the essence of the bill that its drawer orders the drawee to pay money to the payee. It must be imperative – mere predatory words do not suffice. Although terms of politeness may be admissible, excessive politeness may nonetheless prompt one to disregard it as an order.
1.It contains an order to pay.
2.The liability of the drawer of a bill is secondary and conditional. He would be liable if the drawee, after accepting the bill fails to pay the money due upon it provided notice of dishonour is given to the drawer within the prescribed time (Section 30)
3.If a bill is payable some time after sight, it is required to be accepted either by the drawee himself or by some one else on his behalf, before it can be presented for payment.
4.The maker or drawer of an accepted bill stands in immediate relationship with the acceptor and the payee (Explanation to Section 44).
5.In the case of bill, the drawer and payee or the drawee and the payee may be the same person.
6.In the case of a bill of exchange there are three parties, viz, drawer, drawee and payee, and any two of these three capacities can be filled by one and the same person.
7.The bills can be drawn in sets.
8.A bill of change too cannot be drawn conditionally, but it can be accepted conditionally with the consent of the holder.
(iii) This order must be unconditional, as the bill is payable at all events. Thus it is absolutely necessary for the drawer’s order to the drawee to be unconditional. The order must not make the payment of the bill dependent on a contingent event. A conditional bill of exchange is invalid.
Where a bill contains an order to pay the amount specified therein out of a particular fund it will be conditional and therefore invalid. The reason for this invalidity is that it is uncertain whether the funds will be in existence or prove sufficient on the bill becoming payable. However, an unqualified order to pay together with an indication of a particular fund out of which the drawee is to reimburse himself, is not conditional. Hence such as indication does not vitiate the instrument.
(iv) The drawee must sign the instrument. The instrument without the proper signature will be inchoate and hence ineffective. It is permissible to add the signature at any time after the issue of the bill. But if it is not so added, the instrument remains ineffectual.
(v) The drawer, the drawee (acceptor) and the payee – the necessary parties to a bill – are to be specified in the instrument with reasonable certainty. You should remember that all these three parties may not necessarily be three different persons. Once can play the role of two. But there must be two distinct persons in any case.
(vi) The sum must be certain [what we have discussed on this point in relation to promissory note vide requirement (iii) on page 2 will equally hold goods here].
(vii) The medium of payment must be money and money only. The distinctive order to pay anything in kind will vitiate the bill.
You should now try to understand the application of the points emerging from the said definition:
(i) The bill of exchange must be in writing. This point, we take it for granted, needs no further annotation.
(ii) There must be money to the payee. It is of the essence of the bill that its drawer orders the drawee to pay money to the payee. It must be imperative – mere predatory words do not suffice. Although terms of politeness may be admissible, excessive politeness may nonetheless prompt one to disregard it as an order.
1.It contains an order to pay.
2.The liability of the drawer of a bill is secondary and conditional. He would be liable if the drawee, after accepting the bill fails to pay the money due upon it provided notice of dishonour is given to the drawer within the prescribed time (Section 30)
3.If a bill is payable some time after sight, it is required to be accepted either by the drawee himself or by some one else on his behalf, before it can be presented for payment.
4.The maker or drawer of an accepted bill stands in immediate relationship with the acceptor and the payee (Explanation to Section 44).
5.In the case of bill, the drawer and payee or the drawee and the payee may be the same person.
6.In the case of a bill of exchange there are three parties, viz, drawer, drawee and payee, and any two of these three capacities can be filled by one and the same person.
7.The bills can be drawn in sets.
8.A bill of change too cannot be drawn conditionally, but it can be accepted conditionally with the consent of the holder.
(iii) This order must be unconditional, as the bill is payable at all events. Thus it is absolutely necessary for the drawer’s order to the drawee to be unconditional. The order must not make the payment of the bill dependent on a contingent event. A conditional bill of exchange is invalid.
Where a bill contains an order to pay the amount specified therein out of a particular fund it will be conditional and therefore invalid. The reason for this invalidity is that it is uncertain whether the funds will be in existence or prove sufficient on the bill becoming payable. However, an unqualified order to pay together with an indication of a particular fund out of which the drawee is to reimburse himself, is not conditional. Hence such as indication does not vitiate the instrument.
(iv) The drawee must sign the instrument. The instrument without the proper signature will be inchoate and hence ineffective. It is permissible to add the signature at any time after the issue of the bill. But if it is not so added, the instrument remains ineffectual.
(v) The drawer, the drawee (acceptor) and the payee – the necessary parties to a bill – are to be specified in the instrument with reasonable certainty. You should remember that all these three parties may not necessarily be three different persons. Once can play the role of two. But there must be two distinct persons in any case.
(vi) The sum must be certain [what we have discussed on this point in relation to promissory note vide requirement (iii) on page 2 will equally hold goods here].
(vii) The medium of payment must be money and money only. The distinctive order to pay anything in kind will vitiate the bill.
Bill of Exchange and its features
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