PARTIES FOR BILL OF EXCHANGE

Bill of exchange is the term used in the context of purchase and sale of goods on credit. It refers to unconditional order by the maker to pay definite sum of money to the holder of the instrument; it is signed by the maker of the instrument and it should be accepted by the drawee. Since many people get confused by the terms of bill of exchange it is better to clear the doubts regarding the parties which are there in bill of exchange and what are the functions or responsibility of each party. Let’s look at the various parties which are there in bill of exchange

1.  Drawer – It is the person who has sold the goods on credit to the buyer of goods and for receiving the payment from the buyer he draws a bill of exchange. It is the drawer who starts the whole process of bill of exchange because it is the drawer who requires funds. He is also called maker of bill of exchange. For example if A sells goods to B on credit then A will be called drawer of bill of exchange.

2.  Drawee – It is the person on whom the bill of exchange is drawn and he has to make the payment to the supplier of goods or if the suppler has discounted the bill with some other party then buyer has to make payment to that party. So in above example B would be called drawee since he has to pay for the goods purchased by him or her on credit to A.

3.  Payee – Payee refers to the person to whom the payment has to be made. Payee is usually the person who draws the bill; in above example A would be payee of bill of exchange. However if the payee has discounted the bill with bank or some other third person then in that case payee will be bank or third party and drawee has to make payment accordingly. After the drawee has made the payment to the payee the whole process of bill of exchange comes to an end.

Parties to a Bill of Exchange

There are three parties to a bill of exchange:

1.   Drawer is the maker of the bill of exchange. A seller/creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor. The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange.

2.   Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.

3.   Payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment.

The payee may change in the following situations:

a.   In case the drawer has got the bill discounted, the person who has discounted the bill will become the payee;

b.   In case the bill is endorsed in favour of a creditor of the drawer, the creditor will become the payee.

Normally, the drawer and the payee is the same person. Similarly, the drawee and the acceptor is the person.

For example, Mamta sold goods worth Rs.10,000 to Jyoti and drew a bill of exchange upon her for the same amount payable after three months. Here, Mamta is the drawer of the bill and Jyoti is the drawee. If the bill is retained by Mamta for three months and the amount of Rs. 10,000 is received by her on the due date then Mamta will be the payee. If Mamta gives away this bill to her

                                                                                                                                                                                 

Promissory Note

According to the Negotiable Instruments Act 1881,”a promissory note is defined as an instrument in writing (not being a bank note or a currency note), containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument”.

This definition mean that when a person gives a promise in writing to pay a certain sum of money unconditionally to a certain person or according to his order the document is called is a promissory note.

Following are the features of a promissory note:

 It must be in writing

 It must contain an unconditional promise to pay.

 The sum payable must be certain.

 It must be signed by the maker.

 The maker must sign it.

 It must be payable to a certain person.

 It should be properly stamped.

A promissory note does not require any acceptance because the maker of the promissory note himself promises to make the payment.

                                                                                                                                                                                   

			http://gradestack.com/Class-11th-Commerce/Bills-of-Exchange/Promisso...
	Ashok Kumar		New Delhi
	Rs. 30,000		01 April, 2006
	Three months after date I promise to pay Sh. Harish Chander or order a sum of Rupees
	Thirty Thousand only for value received.
	Stamp
	To
	Harish Chander		Ashok Kumar
	24, Ansari Road		2, Dariba Kalan
	Darya Ganj		Candani Chowk
	New Delhi 110 002		Delhi 110 006

Fig. 8.2: Showing specimen of promissory note

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