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BILL OF EXCHANGE

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 , a certain person or to the bearer of the instrument.

A promise or order to pay is not conditional within the naming of this section and section 4, by
the reason of the time for payment of the amount or any installment thereof being expressed to
be on the lapse of a certain period after the occurrence of a specified event which, according to
ordinary expectation of mankind, is certain to happen, although the time of its happening may
be uncertain.

The sum payable may be certain , within the meaning of this section and section 4 , although
it includes future interest or is according to the course of exchange , and although the
instrument provides that on default of payment of an installment , the balance unpaid
shall become due .

The person to whom its clear that the direction is given or that payment is to be made
may be certain person within the meaning of this section and section 4 , although he is
misnamed or designated by description only

Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer, which Sameer has to
return. Now, Rajiv also has to give some money to Tarun. In this case, Rajiv can make a
document directing Sameer to make payment up to Rupees Ten Thousand to Tarun on demand
or after expiry of a specified period. This document is called a Bill of Exchange, which can be
transferred to some other person’s name by Tarun.

Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange as ‘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 a certain person, or to the bearer of the

instrument’.

000/. ii. The Payee – The person to whom the payment is to be made. In a bill where a time period is mentioned. is called a Time Bill. He is generally a debtor of the drawer. . New Delhi 20-November-2010 Five months after date pay Tarun or (to his) order the sum of Rupees Ten Thousand only for value received To Accepted Stamp Sameer Sameer S/D Address Rajiv Parties to a Bill of Exchange There are three parties involved in a bill of exchange. This is called a Demand Bill. They are- i. 10. Here the words in the bill would be Pay to us or order. In this case it is Tarun. In the above specimen Rajiv is the drawer. The Drawer – The person who makes the order for making payment. just like the above specimen. The Drawee – The person to whom the order to pay is made.SPECIMEN OF A BILL OF EXCHANGE Rs. It is Sameer in this case. But a bill may be made payable on demand also. The drawer can also draw a bill in his own name thereby he himself becomes the payee. iii.

The essence of a bill of exchange is that the drawer order the drawee to pay money to the payee . and any for of words may be used .however .LJCP . which are payable in any case to the person giving the order . 2. nor the cheques as agreements did not make B a banker. please do let the bearer have seven pounds and place into account . was held not to be a demand made by a party having a right to call on the other to pay. be imperative and not necessary that it must . therefore . REQUISITES OF BILL OF EXCHANGE 1. (Rtaulal Vs Vrijbhukkan[1893] ILR 17 Bom 684) .in its term .19 . The fair meaning to put on such an instrument was stated to be you will oblige me by doing it’(Little Vs Slackford .. its is necessary that it must . When a bill of exchange is drawn . in such a manner that it might be treated as a mere request would cause inconvenience and uncertainty.[1840]2 Mood & R 266) In pursuance of an agreement to lend money . A mere request to pay to an account was held not amounting to an order(P Morris Vs Solomon ..eg credit in cash . B did so and sued A for the amount so advanced . [1828] M&M 171) .. 1850.and you will oblige . an instrument running ‘Mr AB will much oblige Mr CD by paying to the order of P ‘ was held good as a bill. However the insertion of a term of politeness or a courteous expression like ‘ please pay affixed to the order’ will not invalidate an instrument purporting to be a bill of exchange . The use of any particular from or words is not essential and any words would do if there is a demand . A give his creditors some ‘chits’ for certain sums . the direction to the drawee . It was held that chits were 9 neither bills of exchange . Excessive terms of politeness may lead to the construction that the communication contained in the bill was not an order . will be sufficient . As a bill of exchange is an order .(Ruff Vs Webb 21 Esp 129). (Edison Vs Collingridge . to frame a bill .268).I Act. A bill of exchange must be in writing A B ill of exchange maybe written in any language . addressed to B and required him to pay the amount mentioned therein . provided the requirements of this section complied with section 4 of N.in its term . Thus. A bill of exchange must contain an order to pay. where a document in the form: ‘Mr little . be imperative and not perceptive. the presumptions is that there are funds in the hands of the person to whom the order is given .Thus .need not be expressed by the word ‘pay’ but any other word conveying the idea of payment .

Similarly. The addition of the words as per agreement does not make note conditional. Thus.3. an unqualified order to pay. or of a particular account to be debited with the amount. a bill containing an order to pay ‘out of money due from A as soon as you receive it’ or ‘out of money remaining in your hands belonging to X Company’. a bill containing an order to pay against cotton per Victory or being a portion of a value as under deposited in security for the payment hereof or against credit No 20. . Where an instrument is payable on a contingency . is not conditional and is therefore valid. an order to pay ‘out of the moneys now due or hereafter to become due to me under the will of my late father and before making any payment to me there out ’ is not a valid bill.s order to the drawee must be u were an instrument unconditional and should not make the payment of the bill dependent on some contingency. is invalid. a bill or mote expressed to be payable out of a particular fund is conditional and invalid. hence this requisites must appear on its face with reasonable certainly . Bills payable out of a particular fund On the same principle. out of which the drawee is to reimburse himself. for the instrument must be valid ab intio. and place it to account as advised per Co. constitutes a valid bill.(Colehan Vs Cooke [1742] Willes 393). However. 4.it does not cease to be invalid by the happening of the event before the expiry of the period fixed for the of the obligation.A conditional bill of exchange is invalid. A bill of exchange cannot be as to be payable conditionally .(Jury Vs Baker[1885]E B &E 459). the drawer . Thus. nor is the promise to pay out of the proceeds of a sale a valid note. because it is uncertain whether the fund will be in existence or prove sufficient when the bill becomes payable.The order contained in the bill should be unconditional Its essence of a bill that it should be payable at all events . coupled with an indication of the particular fund. and carry its validity on its face.

it seems absolutely indispensable that the drawee must be indicated in the bill with reasonable certainty. but expressed to be payable at a certain place. A bill of exchange must be signed by the drawer A bill is not valid unless the drawer signs it and if the drawer has not signed it. he can sign by a mark in lieu of a signature. However such an instrument may be treated as a promise to pay. The person to whom the bill is addressed is called the ‘drawee’ and he must be named or otherwise indicated in the bill with reasonable certainty. In the interest of all parties. because it would create difficulties as to recourse if the bill were dishonoured. the instrument is not a bill of exchange. and is addressed to no one in particular. the acceptor acknowledged that he was the person to whom the bill was directed. It was held that. A document in the form of a bill signed by the acceptor but not by the drawer is not a bill. A bill cannot be addressed to two or more drawees in the alternative. no action can be maintained against the acceptor or any other party who has affixed his signature thereto. However. until it is so added. Thus. it is not a valid bill. Likewise. even though a person writes his acceptance on it. the signature may be added at any time after the issue of the bill but. Thus.5. the acceptor being liable as the maker of a note. the person who accepts and pays a bill on account of the drawer should know with reasonable certainty whether it is addressed to him. but may be valid as an acknowledgement of debt. where and instrument was drawn in the form of a bill. if a bill is accepted by the drawee without the drawer’s signature and negotiated with a third-party. not containing the name of the drawee. it was held to be a valid bill and hence the acceptor was liable to pay the amount. . The drawee must be certain The next requisite is that the instrument must order a person to pay the amount of the bill. the instrument remains inchoate and ineffectual. by his acceptance. so that the payee knows the person to whom he should present the instrument for acceptance and payment. However. 6. If the drawer is unable to write his name. where an instrument is drawn in the form of a bill. and was accepted by a person residing at that place.

An instrument ordering the delivery up . A bill cannot be drawn payable to bearer on demand. where a bill or note is expressed to be with interest. the whole shall become due.of houses and wharf in addition to the payment of a sum of money is not a valid bill. The sum may also be expressed to be payable according to an indicated rate of exchange or according to a rate of exchange to be ascertained as directed by the instrument. but the days of the installments must be stated. 9. The sum may also be expressed to be payable by stated installments with or without a provision that upon default in payment of any installment. so as to discharge himself from all further liability Where a bill is payable to bearer. The payee must be certain A bill must state with certainty the person to whom payment is to be made. or at the indicated rate of exchange or by installment with the proviso that on the default in payment of installment.for in no other way can the drawee. A bill of exchange ought not specify to whom the same is payable . if he accepts it. In England. An instrument containing order to pay money along with some other thing or merely some other thing is not a valid bill. The instrument must contain an order to pay money and money only The medium of payment should be the legal tender money and nothing else. the whole amount shall become due and payable. Bill are rarely drawn payable to bearer. a court would probably allow the appropriate commercial rate. know to whom he may properly pay it. but payee is indicated with certainty. . but cheques are commonly so drawn. The sum payable must be certain The sum payable is certain even though it is required to be paid with interest.7. but no rate is prescribed. An instrument payable with lawful interest is thus not valid for uncertainty. 8. A bill to pay the proceeds of the sale of a consignment of goods even when valued by the drawer at a definite sum is a good bill.

and bills in sets. however. in general. • A promissory noted indorsed by the payee corresponds with an accepted bill payable to the drawer’s order. namely. . • The position of the maker of note. and notice of dishonor is not required. differs from the acceptor’s. However. • Foreign bills must be protested for dishonor. when such protest is required by the law of the place were they are drawn. but the liability of the drawer of a bill of exchange is secondary and conditional. BILLS OF EXCHANGE AND PROMISSORY NOTES COMPARED For most purposes . unless a promissory note is expressed to be payable at a certain place. in that a note cannot be made conditionally. Hence. the rules that apply to bills of exchange are. presentment for acceptance. the payee of the promissory note having the same rights and responsibilities as the drawer of an accepted bill. These are: • The liability of the maker of a promissory note is primary and absolute. whereas the drawer of an accepted bill of exchange stands in immediate relation with the acceptor and not the payee. while a bill may be accepted conditionally. • The following provision relating to bills do not apply to notes. to the acceptor of a bill of exchange (see s 32 of the Act). applicable to promissory notes. being superimposed on that of the drawer. • The maker of a promissory note corresponds. • The maker of a promissory note stands in immediate relation with the payee. acceptance. acceptance supra protest . there are certain points of difference between them. while the maker of the note originates the instrument. The reason for this distinction is that the acceptor of a bill is not the originator of the bill and his contract is supplementary. presentment is not necessary to make him liable. generally.