A Bill of Exchange involves several important terms that define the rights, obligations, and responsibilities of the parties involved in the instrument. These terms are important for understanding the creation, payment, acceptance, transfer, negotiation, and dishonour of a Bill of Exchange.
For examination purposes, a clear understanding of these terms is essential because each term represents a specific person, condition, or activity connected with a Bill of Exchange.
Drawer
The Drawer is the person who initiates, creates, and issues the Bill of Exchange. The Drawer is generally the creditor in the transaction and gives an order to another person to make payment.
The Drawer directs the Drawee to pay the amount specified in the Bill to the Payee.
Therefore, the Drawer is the person who draws the Bill and gives the order to pay.
Drawer = Person who creates the Bill and orders payment
Drawee
The Drawee is the person upon whom the Bill of Exchange is drawn. The Drawee is generally the debtor who is directed by the Drawer to make payment.
The Drawee is required to pay the amount specified in the Bill to the Payee according to the terms of the instrument.
Thus, the Drawee is the person ordered to make payment.
Drawee = Person directed to pay
When the Drawee accepts the Bill and agrees to make payment, the Drawee becomes the Acceptor.
Payee
The Payee is the person who is entitled to receive the amount specified in the Bill of Exchange.
The Payee is generally the beneficiary of the transaction. Payment under the Bill is made in favour of the Payee.
Therefore:
Payee = Person entitled to receive payment
The Payee may also transfer the Bill to another person through endorsement.
Amount
The Amount is the sum of money specified in the Bill of Exchange that the Drawee is required to pay to the Payee.
The amount represents the monetary obligation created under the Bill.
Payment is required according to the amount and terms stated in the instrument.
Therefore, the Amount identifies the sum payable under the Bill of Exchange.
Due Date
The Due Date is the specific date on which the amount of the Bill becomes due and payable by the Drawee.
The due date is calculated according to the term of the Bill.
It determines when the Drawee is required to fulfil the payment obligation and when the Payee is entitled to expect payment.
Therefore: Due Date = Actual date on which