Bill of exchangeLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Definition

• “A bill of Exchange is aninstrument in writingcontaining theunconditional order, signedby the maker, directing acertain person to pay acertain sum of money onlyto or to the order of acertain person or to thebearer of the instrument”.

Definition

• Thus bill of exchange is anorder from the creditor tothe debtor to pay aspecified amount to aperson mentionedtherein.

Parties of Bill

• The maker of bill ofexchange is called theDrawer.

• The person who isdirected to pay is calledDrawee.

• The person who willreceive the money iscalled the Payee.

Essential elements of bill of exchange

• The instrument must be inwriting.

• The instrument must containan order to pay, which isexpressed and unconditional.

• There must be three parties,drawer, drawee and payeeand they must be certain anddefinite individuals.

• The instrument must besigned by the drawer.

Essential elements of bill of exchange

• The amount of money to bepaid must be certain.

• The payment must be in thelegal tender money of India.

• The money must be payableto a definite person oraccording to the order.

• It must comply with theformalities as regards date,consideration, stamps etc.

Difference between promissory note and bill of exchange

• There are two parties,promisor and promise in apromissory note whilethere are three parties,payee, drawee and drawerin a bill of exchange.

• A promissory note is anunconditional promise topay while a bill of exchangeis an unconditional order topay.

Difference between promissory note and bill of exchange

• In promissory note, liability ofthe maker is primary andabsolute while liability of thedrawer of bill of exchange issecondary and conditional.

• A promissory note cannot bemade payable to the makerhimself while the drawer andthe payee must be the samein bill of exchange.

Difference between promissory note and bill of exchange

• A promissory note requiresnot acceptance since it issigned by the person who isliable to pay while the bill ofexchange requires acceptanceby the drawee before it ispresented for payment.

• A promissory note cannot bedrawn payable to a bearerwhile a bill of exchange canbe so drawn provided it is notpayable to bearer ondemand.

Difference between promissory note and bill of exchange

• Maker of a promissory notestands in immediaterelation with the payee.Drawer of a bill stands inimmediate relation withacceptor and not the payee.

• Promissory note cannot bedrawn in sets. A bill can bedrawn in sets.