Important Terms in Bills of Exchange:
Bills of exchange involve various terms and conditions that outline the rights, obligations, and responsibilities of the parties involved. These terms are crucial for understanding the terms of payment, acceptance, negotiation, and other aspects of the bill. Here’s a detailed explanation of certain important terms in bills of exchange:
1. Drawer: The drawer is the party (creditor) who initiates the bill of exchange by creating and issuing it. The drawer orders the drawee to make a payment to the payee.
2. Drawee: The drawee is the party (debtor) upon whom the bill of exchange is drawn. The drawee is directed to make the payment specified in the bill to the payee.
3. Payee: The payee is the party who is entitled to receive the payment specified in the bill of exchange. The payee is often the beneficiary of the transaction.
4. Amount: The amount is the sum of money specified in the bill of exchange that the drawee is obligated to pay to the payee.
5. Due Date: The due date is the specific date on which the payment becomes due and payable by the drawee. It is calculated based on the term of the bill.
6. Term: The term refers to the duration or period between the date of issuance or acceptance of the bill and the due date. It determines the credit period granted to the drawee.
7. Sight Bill: A sight bill is a type of bill of exchange where the payment is due upon presentation to the drawee. There is no specific term; the payment is immediate.
8. Usance Bill: A usance bill is a type of bill of exchange where the payment is due after a specified period from the date of presentation. The term is expressed in days or months.
9. Acceptance: Acceptance refers to the drawee’s written agreement to the terms of the bill, indicating their commitment to make the payment on the due date. Acceptance is typically indicated by the drawee’s signature.
10. Endorsement: Endorsement is the act of transferring the rights of the payee to another party by signing the back of the bill. It allows the bill to be negotiated to a third party before maturity.
11. Dishonor: Dishonor occurs when the drawee fails to make the payment as required by the bill of exchange. It may lead to legal consequences and additional costs.
12. Holder in Due Course: A holder in due course is a person who acquires a bill of exchange for value, in good faith, and without notice of any defects or claims. Such a holder has certain legal rights and protections.
13. Accommodation Bill: An accommodation bill is a bill of exchange drawn, accepted, or endorsed by a party without consideration or value received. It is often used to provide financial assistance or credit support.
14. Negotiation: Negotiation refers to the transfer of the bill from one party to another for value. It is a key aspect of the bill’s circulation and financing.
15. Forfaiting: Forfaiting involves the sale of a bill of exchange or promissory note to a financial institution (forfaiter) at a discount. The forfaiter assumes the credit risk and provides immediate funds to the seller.
Understanding these important terms is essential for effectively using and navigating bills of exchange in commercial transactions. These terms define the rights and obligations of the parties and influence the negotiation, acceptance, and payment of the bill.