The Bill of Exchange:
A negotiable instrument, similar to a post-dated cheque, which is
usually sold at a discount. The person holding it has proof of debt.
A bill is an unconditional order in writing, addressed by the drawer
to the drawee, requiring the drawee to pay a sum of money on demand
or at a specified future time to the payee (who might be the drawer
or another party) or to the bearer. If the drawee accepts the bill,
by writing on it and signing it, he becomes the acceptor and
therefore primarily liable to pay the bill when it becomes due. If
the acceptor fails to pay, the drawer or an endorser must compensate
the holder. (Every endorser of a bill of exchange is in the nature
of a new drawer and is liable to every succeeding holder should the
acceptor and drawer default on payment.) The formal definition of a
bill of exchange under the Bills of Exchange Act 1909 - 1973 is: 'An
unconditional order in writing, addressed by one person to another,
signed by the person giving it, requiring the person to whom it is
addressed to pay on demand, or at a fixed and determinable future
time, a sum certain in money to the order of a specified person, or
to bearer.' Bills of exchange date from the fourth century BC and
became popular in the eighteenth and nineteenth centuries as a means
of financing expanding world trade. They are widely used in the
money market, issued by companies borrowing funds and traded through
a range of holders until they mature, at which point the holder
receives face value from the acceptor. Bills of exchange can be
bank-accepted or bank-endorsed, or can rank as commercial bills, in
which case no bank name appears on the bill.
Parties to a bill of exchange include the following:
Acceptor:
The party to whom a bill of exchange is addressed and who accepts a
bill of exchange drawn on him. Until the bill is signed and
accepted, this party is called the drawee. The acceptor agrees to
pay the person presenting the bill on the due date the face value of
the bill. The acceptor of the bill has a direct liability through
the bill; he is primarily liable to pay out the funds on the due
date. But if the acceptor fails to pay, the drawer has to compensate
the holder of the bill or any endorser who has paid out.
But if the acceptor fails to pay, the drawer has to compensate the holder of the bill or any endorser who has paid out.
Drawee:
The party to whom the bill of exchange is addressed, who is required to pay
the stipulated sum of money (the face value of the bill) at a specified
future date to the payee named on the bill or to bearer. Once the drawee
accepts the bill, by writing on it and accepting it, he becomes the acceptor
and is primarily liable to pay out when the bill matures.
Drawer:
The party who issues the bill, who makes the order for the bill to be
accepted and paid. The drawer signs the bill as its maker and has a
contingent liability on the bill until it matures as, in the event of
default by the acceptor, the drawer is obliged to pay out the face value of
the bill on its due date to the holder.
Endorser:
The party signing on the reverse of the bill as confirmation of purchase and
title to the bill. The list of endorsers' signatures on the back of the bill
establishes the chain of ownership of the bill. (sometimes written indorser)
Payee:
The person to whom the face value of a bill of exchange is to be paid (as
with a check). The payee appears as the first endorser on the reverse of the
bill and this endorsement starts the chain of ownership of the bill. The
picture becomes complicated when it is remembered that the payee on a bill of exchange can also be the drawer or
another party.
For more information from the Financial Dictionary click on the link below:
The Language of Moneyhttp://www.anz.com/edna/dictionary.asp?action=content&content=bill_of_exchange
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