According to section 5 of the Negotiable Instruments Act, 1881, defines Bill Of Exchange as “A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”
A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.
The sum payable may be “certain”, within the meaning of this section and section and section 4, although it includes future indicated rater of change, or is according to the course of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.
The person to whom it is clear that the direction is given or that payment is to be made may be a “certain person,” within the meaning of this section and section 4, although he is misnamed or designated by description only.
Dictionary Meaning of Bill of Exchange
T.P Mukherjee law Dictionary with pronunciation defines Bill of Exchange as under: “A bill of exchange is an uncondition 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 or determinable future time, a sum certain in money to or the order of a specified person or to bearer.”
Legal and commercial dictionary defines Bill of Exchange as under: “Bill of Exchange includes a hundi and a cheque. A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of certain. Person or to the bearer of the instrument.”
Black‘s law Dictionary defines Bill of Exchange as under: “Bill of Exchange. A three party instrument in which first party draws an order for the payment of a sum certain on a second party for payment to a third party at a definite future time.”
Wharton ‘s law lexicon Dictionary defines Bill of exchange as under: “As an unconditional order in writing, addressed by one parson to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.”
K.J. Aiyers judicial Dictionary defines Bill of Exchange as under: “It is a written order or request by one person to another for the payment of money at a specified time absolutely and at all events. A bill of exchange is only a transfer of a chose in action according to the custom of merchants, it is an authority to one person to pay to another the sum which is due to the first.”
P.G. Osborn’s. The concise commercial Dictionary defines Bill of Exchange as under: “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 or determinable future time, a sum certain in money, to or to the order of, a specified person, or to bearer. A bill of exchange is a negotiable instrument.”
Mitra’s legal and commercial Dictionary defines Bill of Exchange as under: “A bill of exchange means a bill of exchange as defined in the Negotiable Instruments Act 1881, and includes also a hundi, and any other document entitling or purporting to entitle any person whether named there in or not, to payment by any other person of, or to draw upon any other person for, any sum of money.”
Stroud’s Judicial Dictionary defines Bill of Exchange as under: “An order to pay out of a particular fund is not unconditional within the meaning of this section, but an unqualified order to pay, coupled with (a) an indication of a particular fund out of which the drawee is to reimbures himself or a particular account to be debited with the amount, or (b) a statement of the transaction which gives rise to the bill, is unconditional.”
Jowitt’s Dictionary of English law defines Bill of Exchange as under: “An unconditional order in writing, addressed by one person (A) to another (B) signed by the person giving it, requiring the person to whom it is addressed to pay, on demand, or at a fixed or determinable future time, a sum certain in money to, or to the order of a specified person (c), or to bearer ( Bill of Exchange Act 1882, s3 ) A is called the drawee, B the drawer and C the payee. Sometimes, A the drawer is himself the payee. The holder of a bill may treat it as a promissory note (q.v) if the drawer and drawee are the same person s5(2), when B, the drawee, has, by accepting the bill, under taken to pay it, he is called the acceptor.”
Features of a Bill of Exchange
The definition of a Bill of Exchange under the act is fairly exhaustive and almost covers all the aspects related to it at one place. A Bill of Exchange requires three parties.
- The drawer, i.e. the person who is the maker of the bill and who gives the order.
- The drawee, i.e. the person who is directed to pay the bill and who on affixing his signature becomes the acceptor ; and
- The payee, i.e. the person to whom or to whose order the amount of the instrument is payable, unless the bill is payable to bearer.
To analysis of the definition shows the following essential requisites of a bill of exchange.
- A Bill of Exchange must be in Writing – A bill of exchange may be written in any language, and any form of words may be used, provided the requirements of this section are complied with.
- A Bill of Exchange must Contain an Order to Pay – When a bill of exchange is drawn, the presumption is that there are funds in the hands of the person to whom the order is given, which are payable in any case to the person giving the order. The essence of a bill of exchange is that the drawer orders the drawee to pay money to the payee. As a bill of exchange is an order, it is necessary that it must, in its terms, be imperative and not perceptive.
- The Order Contained in the Bill Should be Unconditional – It is essence of a bill that it should be payable at all events, A bill of exchange cannot be drawn so as to be payable conditionally. The drawer’s order to the drawee must be unconditional and should not make the payment of the bill dependent on some contingency. Where an instrument is payable on a contingency, it does not cease to be invalid by the happening of the event before the expiry of the period fixed for the performance of the obligation, for the instrument must be valid ab initio, and carry its validity on its face. A conditional bill of exchange is invalid. The addition of the words as per agreement does not make a note conditional.
- Bills Payable Out of a Particular Fund – On the same principle, a bill expressed to be payable out of a particular fund is conditional and invalid, because it is uncertain whether the fund will be in existence or prove sufficient when the bill becomes payable. Thus a bill containing an order to pay ‘out of money due from A as soon as you receive it, or out of money remaining in your hands belonging to X company is invalid.
- A Bill of Exchange must be Signed by the Drawer – A Bill is not valid unless the drawer signs it and if Drawer has not signed it no action can be maintained against the acceptor or any other party who has affixed his signature these to. If the drawer is unable to write his name, he can sign by a mark in lieu of a signature.
- The Drawee must be Certain – The next requisite is that the instrument must order a person to pay the amount of the bill. The person to whom the bill is addressed is called the ‘drawee’ and he must be named or otherwise indicated in the bill with reasonable certainty. So that the payee knows the person to whom he should present the instrument for acceptance and payment. A bill cannot be addressed to two or more drawees in the alternative because it would create difficulties as to recourse if the bill were dishonoured.
- The Sum Payable must be Certain – The sum payable is certain even though it is required to be paid with interest, or at the indicated rate of exchange or by installment with the proviso that on the default in payment of instalment, the whole amount shall become due and payable.
- The Instrument must Contain an Order to Pay Money and Money only – The medium of payment should be the legal tender i.e. money and nothing else. An instrument containing order to pay money along with some other thing or merely some other thing is not a valid bill. An instrument ordering the delivery up of houses and a wharf in addition to the payment of a sum of money is not a valid bill.
- The Payee must be Certain – A bill must state with certainty the person to whom payment is to be made. A bill of exchange ought to specify to whom the same is payable, for in no other way can the drawee, if he accepts it, know to whom he may properly pay it so as to discharge himself from all further liability. Where a bill is payable to bearer, the payee is indicated with certainty. Bills are rarely drawn payable to bearer, but cheques are commonly so drawn. A bill cannot be drawn payable to bearer on demand. Where in a bill the drawee or payee is misnamed or misdescribed, extrinsic evidence is admissible to identify him