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Bills of Exchange


Q.1. What do you mean by bill of exchange? Who are the parties of a Bill of exchange? Mention its features.                                                                       

Ans: -   A bill of exchange as, "an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a sum of money only to or to the order of a certain person or to the bearer of the instrument." A bill of exchange is also called a draft.

There are three parties to a bill of exchange namely:

(i)      Drawer

(ii)    Drawee and

(iii)   Payee.

Drawer is the maker of the bill of exchange. A seller/creditor that is entitled to receive money from the debtor can draw a bill of exchange upon the buyer.
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.
A 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.

             Features of bills of exchange:

i.         A bill of exchange must be in writing.

ii.       It is an order to make payment.

iii.      The order to make payment is unconditional.

iv.     The maker of the bill of exchange must sign it.

v.       The payment to be made must be certain.

vi.     The date on which payment is made must also be certain.

vii.    The bill of exchange must be payable to a certain person.

viii.  The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.

ix.     It must be stamped as per the requirement of law.


Q.2. Describe the Advantages of Bill of Exchange.                                                                                                                           

Ans: -   Advantages of Bill of exchange:

i.         Framework for relationship: A bill of exchange represents a device, which provides a framework for enabling the credit transaction between the seller/creditor and buyer/debtor on an agreed basis.

ii.       Certainty of terms and conditions: The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money.

iii.      Convenient means of credit: A bill of exchange enables the buyer to buy the goods on credit and pay after the period of credit.

iv.     Conclusive proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods; therefore, he is liable to pay to the seller.

v.       Easy transferability: A debt can be settled by transferring a bill of exchange through endorsement and delivery.


Q.3. What is Promissory note? What are the features of Promissory note?                                                        

Ans: -   A Promissory note is defined as an instrument in writing, 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.

 Features of Promissory note are:

i)  It must be in writing.
ii) It must contain an unconditional promise to pay.
iii) The sum payable must be certain.
iv)  It must be signed by the maker.
v)  The maker must sign it.
vi)  It must be payable to a certain person.
vii)  It should be properly stamped.


Q.4. Create a specimen of bill of exchange and promissory note.                                                                            

Ans: -   
a) Bill of Exchange

Mr. X



April 01,2010

Three months after date pay to me or my order, the sum of rupees Fifty Thousand only, for value received.




Mr. Y

Dibrugarh, Assam


Mr. X

Tinsukia, Assam


Mr. Y

Dibrugarh, Assam

  b) Promissory Note

Mr. X



April 01,2010

Three months after date I promise to pay Mr. Y or order a sum of Rupees Fifty Thousand only for value received.




Mr. Y

Dibrugarh, Assam

Mr. X

Tinsukia, Assam


 Q.5. Differentiate Between Bill of Exchange and Promisory Note.                                                          

Ans: -


Bill of Exchange

Promissory Note

        i.         Drawer

It is drawn by the creditor

It is drawn by the debtor

        ii.       Order or Promise

It contains an order to make payment. There can be three parties to it, viz. the drawer, the Drawee and the payee.

It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.

        iii.      Acceptance

It requires acceptance by the Drawee or someone else on his behalf.

It does not require any acceptance.

        iv.     Payee

Drawer and payee can be the same party

Drawer cannot be the payee of it

        v.       Set

A bill of exchange can be drawn in sets.

Promissory note cannot be drawn in sets.

        vi.     Notice

In case of its dishonour due notice of dishonour is to be given by the holder to the drawer.

No notice needs to be given in case of its dishonour.


Q.6 What are the difference between Trade Bill and Accommodation Bill?                                                                      

Ans: -   


Trade Bill

Accommodation Bill

i.         Purpose

There are drawn for trade purposes.

These are drawn and accepted for financial assistance.

ii.       Consideration

These are drawn against proper consideration.

These are drawn in the absence of any consideration.

iii.      Proof

These bills are proof of debt.

These bills are not a proof of debt.

iv.     Legal action

For obtaining the debt from Drawee, Drawee can resort to legal action.

Legal action cannot be resorted the recovery of amount against these bills by the immediate parties.

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