ICom Notes Class 12 Banking Bill of Exchange and Its Kinds, Parties and Essential

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BILL OF EXCHANGE

A bill of exchange is a written acknowledgment of a debt. It is written by the credit and accepted by the debtor. Section 5 of the Act define a bill of exchange as ‘’An instrument in writing containing an unconditional order, signed by the makers 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.

Kinds of Bill of Exchange

A bill of exchange is of the following types.

i. Inland Bill

A bill of exchange which is drawn in a country and is payable anywhere in the same is called an Inland Bill. For example if a bill is drawn in Pakistan and is payable in any city of the country it will be considered as an Inland Bill.

ii. Foreign Bill

If a bill is drawn in one country but is payable in any other country, this type of bill of exchange is called a foreign bill. For example it has been drawn by a businessman in Pakistan in the name of other businessman living in Japan, the payment of the bill of exchange will be among the two businessman of different nations therefore this kind of bill of exchange is called Foreign Bill.

iii. Commercial Bill

A bill which is drawn for business purposes is called a Commercial bill. Sometimes a businessman does not pay in cash but issues a bill which is payable in some future date such type of a bill is called a Commercial Bill.

iv. Accommodation Bill

An accommodation bill is a bill whereof the acceptor according to the terms of the instrument stands as a surety for some other person who may or may not be a party thereto.

v. Time Bill

These are such type of bills which are payable on demand on some specified dates. These specified dates may be of present or future.

vi. Demand Bill

The bills which are payable on demand are called demand bills. Such type of bills are generally used for specific purposes.

Parties to a Bill of Exchange

The parties to a bill of exchange are given below:

1. The Drawer who prepares the bill.
2. The Drawee in whose name the bill has been drawn.
3. The Payee to whom the bill has to be paid.
4. The Endorsee to whom the bill has been transferred by way of endorsement by the payee.

Essentials of a Bill of Exchange

The following are the essentials of a bill of exchange.

1. It must be in writing.
2. It must be an unconditional order to pay.
3. It must be signed by the maker.
4. It must be addressed by one person to another.
5. It must be written for some certain sum of money.
6. It must be payable on demand.