Bill of Exchange: Meaning, Parties and Essential Conditions for Validity

0

BILL OF EXCHANGE:

Section 5 of Negotiable Instrument Act provides that,

“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 time a certain some of money only to or the order of a certain person or to the bearer of the instrument”.

PARTIES OF BILL OF EXCHANGE:

There are three parties in the bill of exchange:-

  1. Maker (Drawer)
  2. Drawee
  3. Payee

The person who makes the bill is called the drawer. The person who is directed to pay is called the drawee. The person to whom the payment is to be made is called the payee.

“The drawer or the payee in case of endorsement is called the holder. The holder must present the bill”.

EXAMPLE:

A wrote and signed an instrument ordering B to pay Rs. 500/- to C. This is a bill of exchange. In this instrument B has been ordered to pay Rs. 500/- to C.

ESSENTIALS OF A VALID BILL OF EXCHANGE:

The following are essentials of a bill of exchange.

  1. IN WRITING:

A bill of exchange must be in writing. A verbal order to pay cannot be called bill of exchange. The law does not explain about writing. In practice the bill of exchange is written on stamped paper or on form. It may be printed or typed.

EXAMPLE:

A draws a bill on B as under:

“pays Rs.5000/- to X or order.

It is a valid bill.

  1. UNCONDITIONAL ORDER TO PAY:

For bill of exchange to be valid the order to pay must be unconditional. In other words, the order to pay should not depend upon a condition or upon the happening of an uncertain event.

  1. MUST CONTAIN AN EXPRESS ORDER TO PAY:

The bill of exchange must contain an express order to pay money. This feature of a bill of exchange distinguishes it from a promissory note because promissory note contains a promise to pay and not an order to pay. It may be in the form of a request i.e. an order to pay may be in a polite language. But merely giving an authority to a person to pay money is not an order.

EXAMPLE:

Following instruments signed by A are valid bills of exchange as they contain order to pay, though the language used pay is very polite:

  • B, please pay Rs. 500/- to C
  • B will much oblige me by paying to C Rs. 500/-

The following instruments signed by A are not valid bills of exchange as they contain only a request to pay and no order to pay:

  • B, please let C have Rs.500/- and please it to my account and oblige.
  • B, I shall be highly obliged of you make it convenient to pay Rs.1000/- to C.
  1. RELATING TO MONEY:

A bill of exchange must be payable in the form money any money only. If the instrument contains an order to pay something other than money or something in addition to money (if the amount ordered to be paid) it will not be a valid bill of exchange.

  1. IT MUST CONTAIN AN ORDER TO PAY A DEFINITE AMOUNT OF MONEY:

The fifth requirement of a valid bill of exchange is that the amount of money ordered to be paid must be definite and certain. If the amount of money is uncertain the bill of exchange will not be a valid one.

  1. IT MUST CONTAIN CERTAIN PARTIES:

The sixth requirement is that the bill of exchange must contain certain parties. The drawer, the drawee and the payee must be indicated with reasonable certainty.

  1. IT MUST BE SIGNED BY DRAWER:

The last requirement of a valid bill of exchange is that it must be signed by the drawer. The instrument will be complete only when it is signed by the drawer.

8. INTENTION TO MAKE BILL OF EXCHANGE AND ITS DELIVERY:

In addition to the requirements in S.5 of Negotiable Instrument Act (as discussed above) an instrument to be a bill of exchange must be such as to show the intention to make a bill of exchange is inchoate and incomplete until it is delivered to the payee. This point has

9. OTHER FORMALITIES:

As a matter of fact, the requirements above are essential for the validity of a bill of exchange. And the lack of any one or more of these requirements will not make the document a bill of exchange. There are certain other formalities such as number, date, place, consideration and attestation etc. which are usually found in a bill of exchange. But they are not essential in law. Thus, the omission to mention number, date etc. does not invalidate the instrument. But a bill of exchange must be properly stamped.

Leave A Reply

Your email address will not be published.