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Bill of Exchange
Bill of exchange
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A bill of exchange is a written by the creditor and accepted by debtor, usually
there are three parties to a bill of exchange viz, the drawer, the drawee and the payee
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The essential characteristics of a bill exchange may be summarized as follows:
1
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It must contain an order to pay money only
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The order must be unconditional
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It must be signed by the drawer
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The drawer, drawee and payee must be certain
6
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7
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8
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Parties to a Bill of exchange
There are following parties to a bill of exchange:
1
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He is the
creditor or seller and orders the borrower to pay the borrowed money
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Aslam is the drawer
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Drawee:
It is the party to whom the bill of exchange is made
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In the above example, Mr
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3
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The drawer or maker may receive the amount himself or order the
drawee to give the money to someone else
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Acceptor:
The person who accepts the bill to pay is called acceptor
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5
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He may be
a drawer , creditor, bearer or payee
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Holder in due course:
It is the party who rightly possesses the bill
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Types of bill of exchange
Ther are following types of bill of exchange:
1
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Inland bill:
The bill which is used within a country are called inland bills
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b
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2
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Demand or sight bill:
The bill which is payable on demand or at sight is called demand or sight bill
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b
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Three grace days are
allowed after the fixed date and if it remains unpaid, it is considered to be dishonoured
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Kinds by Documents:
a
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They are
further divided into two kinds:
i) Documentary bill against payment:
These bills are only paid when the necessary documents
are issued and presented to the competent authority
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b
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4
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Bearer bill:
These bill are payable to any person who bears or carries them
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Order bill:
The payment of such bills is restricted to the person whose name is written as payee
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5
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Trade bill:
It is an ordinary and most common type of bill used in business transactions
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b
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Its is not the result of a business transaction
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Dishonour of Bill Of Exchange
When the bill of exchange is not accepted or not paid on maturity, it is said to be dishonoured
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Dishonour by non-acceptance
When the drawee refuses to accept the bill within 24 hours of its receipt, the bill it deemed to
be dishonourd
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Dishonour by non-payment
If the drawee does not pay the bill on maturity and even after 3 days of grace, the bill is
considered as dishonoured
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Noting:
When a bill is dishonoured, the holder of the bill takes it to a notary public
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If the drawee still refuses to pay or accept the bill, the notary
records the dishonour in their register
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Protesting:
After noting, a protest is drawn up by the notary
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It outlines the notary’s actions and the drawee's refusal to pay or accept
the bill
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Context: In BOE terms, retirement refers to the drawee (the person who must pay) making the
payment and closing the bill, either before or by its due date, effectively "retiring" the
obligation
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Context: If a BOE is paid off before its due date, the holder may offer a rebate, which is a
partial refund or discount as an incentive for early payment
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Context: Maturity is the deadline by which the drawee must pay the bill
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Grace Days / Grace Period
Definition: Additional days (usually three) allowed beyond the maturity date for payment
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This extra time gives the drawee a buffer to make the payment without defaulting on the bill
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Context: The holder of a BOE can discount it with a bank if they need cash before the bill
matures
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Notary Public
Definition: An official authorized to certify documents and administer oaths, often involved if
a BOE is dishonored
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This serves as legal proof of non-payment and can be useful if
legal action is required
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Context: A holder in due course (HDC) is protected by law, meaning they are entitled to
receive payment regardless of any disputes between the original parties
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