A ‘bill of exchange’ is an instrument in writing, containing an unconditional order, Signed by the maker, directing a certain person to pay a bearer of the instrument (Sec.5).
The maker of the bill is called the “drawer”. The person to whom or whose order the money is to be paid is called the “payee”. If the payee holds the bill, he is called the “holder”.
It is necessary in certain cases for the holder to present the bill to the drawee for his acceptance. When the drawee signifies his acceptance by signing on the bill, then he becomes an acceptor.
It should be noted that in some cases, drawer and drawee may be the same person. For example, when a Principal draws a bill on his agent, the drawer and the drawee are the same. Similarly, drawer and payee may be the same.
Essentials of a bill of Exchange:
For all practical purposes, requirements of a bill elements, discussed above, are more or less, equally applicable to a bill of exchange also.
The essential elements of a bill of exchange are as follows:
1. The bill of exchange must be in writing.
2. It must contain an order to pay.
3. The order must be unconditional.
4. There are three parties, i.e., drawer, drawee and payee. These persons must be certain.
5. The drawer must sign the bill.
6. The sum payable must be certain.
7. The sum payable must be in legal tender money of India.
8. It should be stamped according to the Indian Stamp Act.
9. The other formalities, like, date, place and the words “for value received” are not necessary in law.
10. A bill cannot originally be drawn so as to make it payable to bearer on demand. In the specimen given above, Arun is the drawer, Ajay is the drawee and Vijay is the payee. When Ajay accepts the bill by signing the bill, he becomes an acceptor also.