Bills of exchange is used primarily in International trade, and is a written order by one person to pay another a specific sum on a specific date sometime in the future. It is known as “Draft” in the United States. If the bill of exchange is drawn on a bank, it is called a bank draft.
Parties involved in Bills of Exchange:
A bill of exchange may involve the following parties
1. Drawer This is the person who writes and signs the bill.
2. Drawee This is the person on whom the bill is drawn.
3. Acceptor This is the person who accepts the bill. In practice, the drawee is the acceptor but a third person may accept a bill on behalf of the drawee.
4. Payee This is the person to whom the money stated in the bill is payable. He may be the drawer or any other person to whom the bill has been endorsed.
5. Holder This is the person who is in the possession of the bill, after being drawn. He/She may be the original payee, endorsee and bearer in case of a bearer bill.
6. Endorser The person, either the drawer or holder, who endorses the bill to any one by signing on the back of it is called an endorser.
7. Endorsee He/She is the person in whose favor the bill is endorsed.
8. Drawee in case of need This is a person who is introduced at the option of the drawer. Any endorser may insert the name of such person, and the effect of it is that a resort may be had to him in case the bill is dishonored for non-acceptance or non-payment or in any other need.
9. Acceptor for honour The person who may voluntarily become a party to a bill as acceptor in the event of the refusal by original drawee to accept the bill if demanded by the notary. The acceptor for honor offers to accept the bill supra protest* with a view to safeguard the honor or prestige of the original drawer or any other endorser, as the case may be. This happens when the bill gets dishonored and a formal certificate of dishonor, known as protest, is issued by the Notary Public to the holder of a bill in question. Hence the term supra protest.
It is not necessary that all the above mentioned parties are involved in one bill of exchange. Usually there are three parties to a bill of exchange. They are
- Drawee, and;
It is also not necessary that three separate persons should answer to the description of drawer, drawee, and payee. Depending upon the situation one person may fill any two of three positions. Accordingly, drawer and payee may be the same person. For instance, when the bill is drawn as ‘pay to me or my order‘, drawer and drawee may be the same person. Similarly, when a principal draws a bill on his agent or upon himself, drawee and payee may be the same person.