Friday, September 2, 2011

What is "Bills of Exchange" or Sample of "Bills of Exchange"

What is Bills of Exchange
          Often when goods are sold on credit, the seller would like that the purchaser should give a definite promise in writing to pay the amount of the goods on a certain date.  Commercial practice has developed to treat these written promises into valuable instruments of credit so much so that when a written promise is made in proper form and is properly stamped.   It is supposed that the buyer has discharged his debt and that the seller has received payment.  This is because written promises are often accepted by banks and money is advanced against them.  Otherwise also they can be passed on from person to person.  The written promise is either in the form of a Bill of Exchange or in the form of a promissory note.

          A Bill of Exchange has been defined as 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 of the instrument".  when such an order is accepted in writing on the face of the order itself, it becomes a valid Bill of Exchange.  suppose X order Y to pay Rs. 1000 three months after date and Y accepts this order by signing his name, then it will be a Bill of Exchange. 

The following is a specimen of a properly drawn Bill of Exchange. 

Specimen of a Bill of Exchange
Rs. 1,000.00                                                                                                                                     Rohtak
                                     September, 2011
Three months after date pay To  A.B.C. Company Pvt Limited (Payee) or order the sum of Rs. One Thousand for value received. 

H.No. :-                                                                                                   STAMP  
Gali :-
City :-                                                                  Sign. of  Y                               Sign. of  X
District :-                                                       (Accepted by Drawee)                    ( Drawer) 
State :-                                               


The following points should be noted :
  1. A Bill of Exchange must be writing. 
  2. It must be dated. 
  3. It must contain an order to pay a certain sum of money.
  4. The Draft must be accepted for payment by the party to whom the order is made.
  5. The money must be payable to a definite person or to his order to the bearer.
         The party which makes the order is known as the drawer (as shown in specimen), the party which accepts the order is known as the acceptor and the party to whom the amount has to be paid is known as the payee.  The drawer and the payee can be the same.

          A Bill of Exchange can be passed on to another person by endorsement.  Endorsement on a bill of exchange is made exactly as it is done in the case of a cheque.   The primary liability on a Bill of Exchange is that of the acceptor.   If he does not pay, a holder can recover the amount from any of the previous endorsers or the drawee. 

            The meaning of the term Payee, Drawee and Drawer can be explained with the help of the following example :-

Rajesh sold goods worth  Rs. 50,000 to Umesh for which the former drew a bill to be paid 2 months  after date and sent it to later for acceptance.  After acceptance, the bill becomes a Bill of Exchange.  In the mean time, Rajesh bought goods worth Rs. 50,000 from Sourabh and directed Umesh to pay the amount ro Sourabh. 

Drawer     =Rajesh 
Drawee    =Umesh
Acceptor  = Umesh
Payee       = Sourabh
Payer       = Umesh

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