Bills of Exchange

Bills 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 certain person or to the bearer of the instrument. Advantages of bills of exchange are that it facilitates purchase of goods on credit, holder has the advantage of discounting facility, it can be easily transferred etc. Parties to a bill of exchange are drawer, drawee and payee. Drawer is the person who sells the goods on credit, draws the bill and signs it. Drawee or acceptor is the person who purchases goods on credit, accepts the bills and makes the payment on due date. Payee is the person to whom payment is made on due date. Payee may be drawer himself or a third party. Promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of certain person or to the bearer of the instrument. There are two parties to a promissory note maker or drawer and drawee or payee. Maker or drawer is the person who writes or draws promissory note and signs it.

Honour of a bill implies that payment is made on due date by the drawee. Dishonour of a bill implies that the drawee is unable to make the payment on due date. The drawer has four options to deal with the bill viz. retain the bill till the date of maturity, discount the bill with the bank, endorse the bill in favour of a creditor and send the bill for collection. Days of grace are three extra days added to the period of bill. Noting is the recording of the fact of dishonour by a notary public. Cancellation of original bill and drawing of a new bill in place of old bill on request from the drawee is known as renewal of bill. Retiring a bill is a situation in which the drawee makes the payment of the bill before its maturity. Accommodation bills refer to those bills which are drawn, accepted and endorsed without any consideration.

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