Do you want to know what is bill of exchange and what are the features and types of bill of exchange? You are on the right spot to know the answer of these queries.
A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker. Directing a certain person to pay on demand or at a fixed or determinable future a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument sec 5.
What is Bill Of Exchange
A bill of exchange can also be defined as an unconditional order in writing from the drawer to the drawee directing him to pay on demand or at some future time a some of the money to his order or to the bearer.
A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum in money to or to the order of a specified person or to bearer.
Features of Bill Of Exchange
The following are the essential elements of a bill of exchange;
IT IS AN ORDER
It is an order by the drawer to the drawee. It cannot be a promise or a request. The drawer gives an order to the drawee to sign the document to certain money to the drawer.
UNCONDITIONAL
A bill of exchange contains an unconditional order. No condition can be attached with payment of the bill.
IN WRITING
A bill of exchange is an unconditional order in writing. It cannot be verbal or in any other way.
DRAWER’S SIGNATURE
The bill must be signed by the drawer of the document if it is not signed by the drawer, it will not be a valid bill.
PARTIES OF THE BILL
There are three parties in a bill of exchange. They are the drawer, drawee and the payee. Sometime the drawer and payee is the same person.
FIXED SUM
The amount of bill of exchange is the fixed sum written clearly in words and figures on the bill.
PAYABLE IN MONEY
The amount of the bills is payable only in the form of money It cannot be paid in goods or something else.
PAYMENT PERIOD
The bill of exchange like the promissory note is payable on demand or at some determinable future time.
PAYEE MUST BE CERTAIN PERSON
A bill of exchange must be payable to a certain person whose name is written on the document, or to his order. If it is endorsed by him it becomes payable to the bearer.
PLACE AND DATE
The place and date of issue are also given on the bill of exchange but these are not essential in the eyes of law.
ACCEPTANCE BY DRAWEE
A bill of exchange is drawn by the drawer and accepted by the drawee (debtor). Until it is not accepted, it cannot be a bill of exchange.
Types of Bills Of Exchange
The major kinds of bills of exchange are as under;
INLAND BILL
If all the parties of a bill of exchange (the drawer, the drawee and the payee) are the citizens of the same country, the bill is known as inland or domestic bill. An inland bill is of two types;
(a) Time Bill (b) On demand or at sight bill
TIME BILL
If the period for the payment has been given on the bill then it is known as time bill. The payment of such bill is made after the expiration of the time fixed.
ON DEMAND OR AT SIGHT BILL
If the bill of exchange is payable on demand then it is known as bill at sight or on demand. When this bill is presented for payment the drawee is bound to make payment.
FOREIGN BILL
When the drawer (as well as the payee) and the drawee of the bill are the citizens of two different countries, the hill is known as a foreign bill.
The foreign bills are prepared in sets and each set of them is sent to the drawee after some interval of time. A foreign bill is further subdivided into two kinds.
(a) Time bill (b) Bill at the sight
ACCOMMODATION BILL
When a bill of exchange is written either to accommodate drawer or the drawee, the bill is known as accommodation bill.
Illustration
Ahmed Ali needs money. He writes a bill to his friend Gulzar Ahmed. Gulzar Ahmed accepts it and returns it to Ahmed Ali. Ahmed Ali discounts the bill from his banker and fulfills his need on becoming maturity.
Ahmed Ali will make payment to Gulzar Ahmed and Gulzar Ahmed will make payment to the banker. It will be a bill of exchange written to accommodate Ahmed Ali.
