9 Essential Elements of a Bill of Exchange (With Specimens)

“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 of the instrument.”

The maker of a bill of exchange is called the Drawer. The person who is directed to pay is called the Drawee. The person who will receive the money is called the Payee. When the payee has custody of the bill, he is called the Holder. It is the holder’s duty to present the bill to the drawee for his acceptance. The drawee signifies his acceptance by signing on the bill. After such signature the drawee becomes the Acceptor.

In a bill of exchange sometimes the name of another person is mentioned as the person who will accept the bill if the original drawee does not accept it. Such a person is called the Drawee in case of Need.

Essential Elements of a bill of exchange:

A bill of exchange to be valid must fulfil the following requirements:

1. The instrument must be in writing.

2. The instrument must be signed by the drawer.

3. The instrument must contain an order to pay, which is express and unconditional.

4. The drawer, drawee and the payee must be certain and definite individuals.

5. The amount of money to be paid must be certain.

6. The payment must be in the legal tender currency of India.

7. The money must be payable to a definite person or according to his order.

8. A bill of exchange must be properly stamped.

9. The bill may be made payable on demand or after a definite period of time. But no one except the Reserve Bank and the Government of India can draw a bill payable on demand to the bearer of the bill.

Comments:

The requirements are more or less the same as in promissory notes and are subject to similar conditions as regards signature etc.

If any of the requirements mentioned above is not fulfilled, the document is not a bill of exchange.

Examples:

(i) “Please let the bearer have seven pounds and oblige.” This is not a bill of exchange because it is a request and not an order. Little v. Slackford.

(ii) “We hereby authorise you to pay on our account to the order of X, £600.” This is not a bill of exchange because it is not an order to pay. Hamilton v Spottiswoode.

Specimens of Bills of Exchange:

A bill of exchange may be drawn in any form, provided the requirements mentioned above are fulfilled.

Example:

To A. B.

(i) Six months after date pay P. Q. or order Rs. 1000

Sd/X. Y.

Date _________

Stamp —

(ii) One month after sight pay to P. Q. or bearer (or order) Rs. 500.

Sd/X Y.

Date _________

Stamp —