What is bills of exchange and what are its characteristics ?

Barring cheques, the document which is most commonly in use amongst merchants is a bill of exchange. A bill of exchange is defined by sec. 5 as “an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person, or to the bearer of the instrument”.

Bills of exchange: transaction with acceptance | My Financial ...

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Special Characteristics:

An Instrument, in order to amount in law to as bill of exchange, must fulfill the following conditions (i) it must be in writing (ii) signed by the maker; (iii) it must contain an order iv) which must been unconditional; v) it must direct a certain person vi) to pay certain sum of vii) money only viii) to a certain person or his order or to bearer. Ix) It must be properly stamped. Briefly speaking, before a document can be called a bill of exchange, the drawer must be certain, the order must be certain, the drawee must be certain, the payee must be certain and the sum payable must also be certain. These are popularly called the “five certainties” of a bill of exchange.

Special Characteristics considered: Taking each of the Special Characteristics seriatim: as to


(i) It should be noted that a bill of exchange cannot be oral; it must always take the form of as written document. No particular words are necessary to be used nor is there a set form in which alone a bill of exchange can be drawn. Provided the document fulfills the above conditions laid down by law it will amount to a bill of exchange, whatever its form may be. Writing includes printing.

(ii) A bill which is not signed by the drawer is regarded in law as an “inchoate bill”(see seq.). The signature of the drawer may not be affixed to the document at the time it is drawn but till this is done, the bill is not inchoate and ineffective in law. Thus no action can be brought by as holder against acceptor on a bill which is unsigned by the drawer. Signature includes a mark and even an impressed or litho stamp. The signature on a bill of exchange need not necessarily be of the drawer himself in order to make it valid; The signature of an authorized agent on behalf of the drawer is sufficient for the purpose (see seq.)

(iii) Though no particular form of words is necessary in order to constitute as valid bill, it is essential that the words used must amount to an “order”. In other words, they must not been precatory, i.e. amounting to as mere request, which the addressee is at liberty either to carry out or refuse to carry out.

Thus where the words used were “Mr. Little, please to let the bearer have seven pounds and place it to my account and you will oblige, your humble servant R. Slack form”, it was held that this was not as valid bill. On the other hand , where the words used were ‘Mr. nelson will oblige Mr. Webb by paying to J. Ruff or order twenty genius only his account”, it was held to be as valid bill.


(iv) It is of the essence of as bill that the order directing payment should be unconditional, i.e. the payment should not, only the face of the bill, be dependent on the happening as contingency or the fulfillment of a condition.

Thus an order directing payment to be made “if as certain ship arrives”, “only marriage” (b) or “when realized”(c) is not as valid bill of exchange. Similarly, where moneys are directed to been paid out of as certain fund, e.g. out of amount standing to one’s credit or “out of moneys coming from X”(d) , it has been held that the document is not as valid bill, because there may been no or notice sufficient fund or notice money may been recovered at all.

A direction to the drawer, however, to reimburse himself out of as particular fund will not make the bill conditional. Further, as the expl. to sec. 5 points out, a bill will not been regarded as conditional, because it makes the payment conditional only the happening of an event, which in the ordinary course of nature must happen, though the exact time of its happening may been uncertain , e.g. “only the death of X”.

(v) The drawee must be certain. If the name of the drawee is not mentioned, the bill is incomplete, and nobody who accepts the bill in that condition can be made liable at law as an acceptor. Of course there is nothing to prevent the holder in such a case from treating the bill as a promissory note and treating the “acceptor” as the maker thereof. Notice that there can be joint drawee of bill but not alternate or successive drawee. Further, if the drawee’s name is wrongly mentioned, evidence may be lead to prove who was the person really intended. In an English case, the name of drawee was omitted but his residential address was mentioned, and the person concerned accepted the bill. It was held that he could be validly held liable as an “acceptor”.


(vi) The sum payable must be certain. As direction to pay “$65and all sums that may be due” does not make as valid bill. As the expletory sec.5 points out, however, the sum is not uncertain because it is directed to be paid with interest or by installments or at the prevailing rate of exchange (as in case of foreign bill).

(vii) The amount directed to be paid must be expressed in terms of money only. Thus an order to pay a certain sum and also to deliver up a horse was held not to be valid bill. Similarly, as direction to pay money and to hand over as security is not a bill.

(viii) The bill must be drawn and made payable either to a certain person or his order to bearer. In this connection it has been recently held in England that a document drawn payable to “cash or order” is not a bill of exchange as it is not made payable “to or to the order of any specified persons or bearer”.

The payee must also be certain, i.e. clearly specified only the face of the bill or being otherwise capable of being ascertained with certainty. Notice that it is not necessary for the validity of a bill that the payee must be different from either the drawer or drawee. A bill drawn by A on B in favour of himself is a valid bill; similarly, a bill drawn by A only B in favor of B is also valid. In the last case however, the bill is not effective till the drawee endorse it in favor of another, note further that the Act specifically lays down that a bill may be made payable to joint payees or to payees in the alternative.

(ix) Art. 13 of the Stamp Act lays down the proper stamp for bills of exchange (see seq.). Generally speaking, notice stamp is chargeable on a bill payable only demand. As regards other bills, the duty is 2 annas per thousand or as portion thereof; if bill is payable not more than one year after date or sight; in all other cases the same duty as in case of a bond. A bill must be properly stamped when necessary. In absence of a proper stamp, the bill may be in admissible in evidence (sec.35, Stamp act). Notice that under sec.46, the making (acceptance or endorsement) of a bill of exchange is not completed till delivery thereof , either actual or constructive.

Over and above the above particulars the following points in connection with as bill of exchange may been noted: Figures: the bill at the top or bottom corner mentions the amount in figures. The act provides that where the sum payable is expressed in words is the amount payable (sec.18). Date: the date is mentioned in order to compute maturity of bill. That date is by law regarded as the date of the issue of the bill.

A bill is not invalid because it is undated. Evidence may be adduced to prove the date of its issue. As bill may been antedated or post dated. Place of issue is also mentioned. This is to determine whether it is an “inland “or a “foreign” bill. “For vale received”: the words though generally found in bills of exchange are really superfluous, consideration being always presumed in case of negotiable instrument (sec.118) and also because consideration can always been proved by extrinsic evidence.

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