But depending on how it used, other parties listed below might be involved too and the list is not exhaustive as we will see. In this paragraph, we will see when the different parties come in and which role they play.
Now let us consider the different parties and when they step in from the time the bill of exchange is written and issued. We begin with the drawer, the drawee and the payee. Three main parties involved in a bill of exchange. Drawer: It is the person who makes the bill and orders the drawee to pay a certain sum of money to the payee. The drawer generally issues the bill as part of a domestic or international commercial transaction to receive payment for value delivered. Drawee: The drawee is the other main party involved in the bill of exchange.
He is directed to pay for goods or services received from the drawer. Payee: The creditor of the bill of exchange is called the payee. Since the drawer is the one who delivers value to the payee, he is also the one who is entitled to receive the money. This explains why the drawer and the payee are the same unless the drawer requests the payee to pay to another party. The bill of exchange is therefore an order to pay and requires acceptance to be valid. By acceptance, the drawee engages himself to pay the amount from the bill of exchange to the person who will bear or hold it on the due term.
After drawing the bill of exchange, the first thing the drawer does, is to present it to the drawee for acceptance. Unless it is accepted, the bill is not valid. The signature is enough for acceptance. If there is no acceptance date, the bill is supposed to have been accepted on the day of issue. The acceptor of the bill of exchange is most of the time the drawee. After acceptance, the drawee becomes the acceptor and engages himself to unconditionally pay the bill on or before its maturity date.
The bill of exchange becomes a legal document only after acceptance. This document binds the drawee to honour the bill on due date. An acceptance is unconditional, but in certain countries the drawee may restrict it to part of the sum payable. The acceptance may be general or qualified:. Once the bill of exchange is accepted, the drawee returns it to the drawer and bearer.
And the bearer now has many options to choose between the following:. The second option consists for the drawer to endorse the bill of exchange and deliver it to another party.
Endorsement requires to sign the bill and optionally to put words qualifying that act on it. The drawer, who then uses the bill as a financial instrument, becomes the endorser and the party receiving the bill is the endorsee, the new holder of the bill of exchange. He is also called the holder in due course. Below is a figure showing what happens. We assume in this and the following pictures that the drawer and the payee are the same.
Why would the drawer first holder negotiate the bill of exchange to another party? There are several reasons. He may have a debt with that party that he wants to resolve. He may agree with the next party to negotiate the note in exchange of a sum of money. The negotiation is done to fix a financial problem. Otherwise, it is of no interest. The negotiation process can happen as many time as needed. There is no limit to the number of endorsements that may be made on a bill of exchange.
Procuration signatures. Person signing as agent or in representative capacity. The Consideration for a Bill. Value and holder for value.
Accommodation bill or party. Holder in due course. Presumption of value and good faith. Negotiation of bill. Requisites of a valid endorsement. Conditional endorsement. Endorsement in blank and special endorsement. Restrictive endorsement. Negotiation of overdue or dishonoured bill. Negotiation of bill to party already liable thereon Rights of the holder.
General Duties of the Holder. When presentment for acceptance is necessary. Time for presenting bill payable after sight. Rules as to presentment for acceptance and excuses for non-presentment. Dishonour by non-acceptance and its consequences.
Duties as to qualified acceptances. Rules as to presentment for payment. Excuses for delay or non-presentment for payment. Dishonour by non-payment. Notice of dishonour and effect of non-notice.
Rules as to notice of dishonour. Excuses for non-notice and delay. Noting of protest of bill. Duties of holder as regards acceptor. Bill not assignment of funds in hands of drawee. Liability of acceptor. Liability of drawer or endorser. Stranger signing bill liable as endorser. Measure of damages against parties to dishonoured bill. Transferor by delivery and transferee. Payment in due course.
Banker paying demand draft whereon endorsement is forged. Acceptor the holder at maturity. Express waiver. Alteration of bill. Who is concerned Available to the self-employed and any type of business, settlement by bill of exchange applies in particular to the everyday transactions of businesses carried out abroad. Bills of exchange are therefore widely used by traders as they satisfy: the debtor who will pay on credit; the creditor who will be paid immediately via discounting; the banking institution which earns interest.
Prerequisites the drawer of a bill of exchange must have a bank account; the beneficiary may accept the bill of exchange as a means of settling a debt, but is not obliged to do so; 9 compulsory pieces of information see below must appear on the bill of exchange for it to be valid: in the event of omission, it is called a 'blank bill of exchange' which is in principle null and void and is not valid as a bill of exchange.
How to proceed Application Information that must appear on the cheque the words 'bill of exchange', inserted in the text of the bill; the simple authorisation to pay a specific sum; the amount to be paid, stated both in figures and written out in full. In the event of a discrepancy, the sum written out in full is the amount payable; where the amount is written more than once, either in full or in figures, the lowest sum is the sum payable in the event of a discrepancy; where the bill of exchange is for a currency with the same denomination dollar, for example but a different value in the country of issue and the country of payment, the currency of the place of payment is supposed to be chosen.
Transfer The bill of exchange can be transferred by: handing it over : it is a bearer bill; it is made out to a named person and also contains the words 'or bearer' or an equivalent term ou au porteur in French ; it does not specify a beneficiary. Acceptance and aval acceptance is the undertaking made by the drawee to pay the bill of exchange.
The drawee has no legal obligation to accept the bill of exchange, but if they accept, they become the principal debtor and it is the drawee that the bearer must first ask for payment. The acceptance is written on the bill and signed by the drawee. The endorsement will be recorded in writing, either on the bill of exchange or in a separate document. Business Essentials. International Markets.
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Personal Finance. Your Practice. Popular Courses. Business Essentials Guide to Mergers and Acquisitions. Business Business Essentials. What Is Bill of Exchange? Key Takeaways A bill of exchange is a written order binding one party to pay a fixed sum of money to another party on demand or at some point in the future. A bill of exchange often includes three parties—the drawee is the party that pays the sum, the payee receives that sum, and the drawer is the one that obliges the drawee to pay the payee.
A bill of exchange is used in international trade to help importers and exporters fulfill transactions. While a bill of exchange is not a contract itself, the involved parties can use it to specify the terms of a transaction, such as the credit terms and the rate of accrued interest.
Who Are the Parties to a Bill of Exchange? Compare Accounts.
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