A bill of exchange is an
unconditional order in writing, addressed by one person to another, signed by
the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time, a certain in money to or to
the order of a specified person or to the bearer.
Essentials of bill of Exchange
1. Bill of exchange must be in
writing.
2. The bill must contain an
order to pay.
3. The order must be
unconditional.
4. The amount payable must be
certain.
5. The payment must be made in
currency, not in barter.
6. The bill must be payable to
a certain person or to his order.
7. The bill is payable at a specified
date or on demand.
8. The bill must be duly
stamped.
Parties of Bill of Exchange
Drawer: The drawer is the person who draws the bill. He is the
person who orders to pay a certain sum of money.
Drawee: He is the person on whom the bill is drawn. He is the
person who is ordered to make the payment of the bill.
Payee: He is the person to whom the amount of bill is paid. The
payee may be the drawer himself or a third party.
Kinds of Bill of Exchange
1. Inland Bill: The bill which is drawn and payable in same country
is called inland bill. The bill will also be an inland bill, if the drawer and
drawee are in the same country and the payee resides in a foreign country.
2. Foreign Bill: The bill which is drawn in one country and payable
in another country is known as foreign bill. For instance, the bill is drawn in
Pakistan and accepted and payable in United States.
3. Bills in Set: Generally, foreign bills are drawn in two or more
parts in order to avoid missing the bill in transit and to ensure that at least
one part of the bill reaches the drawee. If one part of the bill is accepted,
the rest of the bills will automatically become invalid.
4. Demand bill: It is the bill that is payable at any time. There
is no specified period of time. It is also known as sight bill.
5. Time Bill: The bill which is payable after a specified period of
time is called time bill. Generally, it is carry three months period plus three
grace days.
6. Documentary Bill: When a bill carries documents like bill of
lading, insurance policy, railway receipt or other shipping documents, it is
known as documentary bill.
7. Non-Documentary Bill: When a bill does not carry documents it is
known as non-documentary or clean bill.
8. Trade Bill: It is the
bill which is drawn and accepted against purchase and sale of goods. It is
drawn by the seller (creditor) and accepted by the buyer (debtor) of goods.
9. Accommodation Bill: Such bills are drawn to help a party
financially. They do not involve any business transaction.
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