bill of exchange
Under s.5 of the Negotiable Instruments Act, 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. There are three parties: the drawer (who makes it), the drawee (who is ordered to pay and becomes the acceptor on accepting) and the payee.
A bill differs from a promissory note, which is a promise by the maker himself to pay and has two parties. A cheque is a bill drawn on a specified banker and payable on demand. Bills are negotiable: they pass by endorsement and delivery, and a holder in due course takes free of defects in title.
Example
The seller drew a bill of exchange on the buyer, payable 90 days after sight, and discounted it with his bank once the buyer accepted it.
In Indian law
- Section 5, Negotiable Instruments Act, 1881 (bill of exchange defined)
- Section 4, Negotiable Instruments Act, 1881 (promissory note)
- Section 6, Negotiable Instruments Act, 1881 (cheque)
See also
negotiable instrument · promissory note · cheque · holder in due course
Read more in the study notes
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