(a) Define a bill of exchange. (b) State six essential features of a bill of exchange. (c) List the parties to a bill of exchange.

Answer Details

(a) Definition of a bill of exchange

A bill of exchange is an unconditional order in writing, addressed by one person (the drawer) to another (the drawee), signed by the person giving it, requiring the drawee to pay on demand, or at a fixed or determinable future time, a certain sum of money to a specified person or to the bearer.

(b) Six essential features of a bill of exchange

1. It must be an order in writing.
2. The order must be unconditional (not tied to any condition).
3. It must be signed by the drawer.
4. It must state a certain sum of money to be paid.
5. The money must be payable on demand or at a fixed or determinable future date.
6. It must be addressed to and payable to a specified person or to the bearer, and must state the date of drawing.

(c) Parties to a bill of exchange

• Drawer: the person (usually the creditor/seller) who prepares and signs the bill, ordering payment.
• Drawee: the person (usually the debtor/buyer) on whom the bill is drawn and who is ordered to pay; when he accepts the bill he becomes the acceptor.
• Payee: the person to whom the money is to be paid (may be the drawer himself or a third party).