Definition & Features of Bill of Exchange

Definition of 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 the order of certain person or to the bearer of the instrument.

Drawer: The person who orders the payment

Drawee : The person to whom the order is given.

Payee:  The person to whom the payment has to be made.

Drawer & payee may be the same person.

Essential Elements of a Bill Of Exchange

Date, Time, Amount, Parties, Stamp, Value Received, Acceptance are essential elements of a bill of Exchange.

Features of a Valid Bill of Exchange

  • It should be in writing and should be unconditional.
  • It should be signed by the drawer of the instrument.
  • It must contain a certain amount of money which has to be paid.
  • Drawer, Drawee and payee must be certain & exact person.
  • It must contain a date & must be stamped.
  • Bill must be accepted by the party on whom it is drawn & addressed.
  • It is a negotiable instrument and can be transferred hand to hand in settlement of order.
  • It is a riskless instrument as we do not require carrying money from one place to other.
  • The debtor enjoys the full credit as he is not imposed to pay the amount of bill before the due date
  • Payment can be enforced on a bill of exchange in a court of law.