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Malaysian Negotiable Instruments-Bills of Exchange-No Particular Form of Words • Drawer • Drawee • Payee
Case Scenario
Sarah Furniture Sdn. Bhd. sells office furniture worth RM30,000 to Ali Trading Sdn. Bhd. on 60 days’ credit.
Sarah prepares a bill of exchange that states:
“Please pay Sarah Furniture Sdn. Bhd. RM30,000 sixty days after sight.”
Ali argues that the bill is invalid because Sarah did not use the exact words:
“I order you to pay.”
Questions
Questions and Answers
Question 1
Must a bill of exchange follow a specific wording?
Answer
No.
The law does not require a bill of exchange to follow a particular form or use specific words.
As long as the words clearly amount to an order or direction to pay, the requirement is satisfied.
Legal Principle
The order to pay:
Example
Sarah writes:
“Please pay Sarah RM20,000 in 60 days.”
✔ Valid.
The words clearly direct payment.
Another Example
Sarah writes:
“Kindly pay Sarah RM20,000 on demand.”
✔ Valid.
Although different words are used, the meaning remains an order to pay.
Case Law
Morice v Lee (1725)
Principle
The court held that any expression amounting to an order or direction to pay is sufficient.
The exact wording is not important.
Simple Example
Instead of writing:
“Pay Sarah RM20,000.”
Sarah writes:
“Kindly pay Sarah RM20,000.”
Both have exactly the same legal effect.
Case Law
Ellison v Collingridge (1850)
Facts
The document stated:
“I promise to pay or cause to be paid.”
Held
The court held that this wording was still legally effective.
Principle
Equivalent expressions that clearly require payment are sufficient.
Simple Example
Sarah writes:
“I will pay Sarah RM15,000 or arrange for payment to be made.”
The wording still clearly creates an obligation to pay.
Case Law
Lovell v Hill (1833)
Principle
Different words may be used provided they communicate the same legal meaning.
The law focuses on the substance rather than the exact wording.
Simple Example
Instead of:
“Pay Sarah RM10,000.”
Sarah writes:
“Credit Sarah with RM10,000 in cash.”
Although the wording differs, it still directs payment.
Parties to a Bill of Exchange
Every bill of exchange normally involves three parties.
Drawer
Definition
The drawer is the person who prepares, signs, and issues the bill of exchange.
The drawer gives the order to pay.
In commercial transactions, the drawer is usually the creditor.
Example
Sarah sells furniture worth RM25,000 to Ali on credit.
Sarah prepares the bill.
Sarah is the drawer.
Drawee
Definition
The drawee is the person who is ordered to make payment.
The drawee is usually the debtor.
Once the drawee accepts the bill, the drawee becomes the acceptor.
Example
Sarah orders Ali to pay RM25,000.
Ali is the drawee.
After signing the bill,
Ali becomes the acceptor.
Payee
Definition
The payee is the person entitled to receive payment.
The payee is often the drawer but may also be another person.
Example 1
Sarah draws the bill and makes it payable to herself.
Sarah is both:
Example 2
Sarah draws a bill stating:
“Pay ABC Timber Sdn. Bhd. RM25,000.”
Sarah remains the drawer.
ABC Timber Sdn. Bhd. becomes the payee.
Relationship Between the Parties
Before Acceptance
Sarah sells furniture to Ali.
Sarah prepares the bill.
Ali has not yet accepted it.
Parties
After Acceptance
Ali signs the bill.
Ali now becomes the acceptor.
Parties
Practical Business Example
Sarah supplies office furniture to Ali worth RM50,000.
Instead of paying immediately, Ali agrees to pay after 90 days.
Sarah prepares a bill ordering Ali to pay RM50,000 after 90 days.
Ali signs the bill.
Parties
Drawer
Sarah (creditor)
↓
Drawee
Ali (debtor)
↓
Acceptor
Ali (after signing)
↓
Payee
Sarah
Comparison in Note Form
Drawer
Meaning
The person who prepares and signs the bill.
Usually
The creditor.
Main Responsibility
Orders payment.
Drawee
Meaning
The person ordered to pay.
Usually
The debtor.
Main Responsibility
Accepts and pays the bill.
Acceptor
Meaning
The drawee after accepting the bill.
Main Responsibility
Becomes primarily liable to pay.
Payee
Meaning
The person entitled to receive payment.
Usually
The drawer, but may be another person.
Key Examination Notes
No Particular Words Required
A bill does not have to use:
Drawer
Drawee
Acceptor
Payee
Critical Analysis
The Bills of Exchange Act 1949 adopts a practical approach by focusing on the substance of the instrument rather than its precise wording. Commercial parties often use different expressions when preparing bills of exchange. As long as the document clearly communicates an unconditional order to pay, it will generally satisfy the statutory requirements. This flexibility promotes commercial efficiency while preserving legal certainty.
Practical Applications
These principles are commonly encountered in:
Five Real-Life Examples
Example 1
A supplier prepares a bill stating:
“Please pay RM80,000 after 90 days.”
✔ Valid.
Example 2
A manufacturer writes:
“Kindly pay RM25,000 on demand.”
✔ Valid.
Example 3
A wholesaler draws a bill ordering a retailer to pay after 60 days.
The wholesaler is the drawer.
Example 4
The retailer signs the bill.
The retailer becomes the acceptor.
Example 5
The wholesaler names its bank as the payee.
The bank becomes entitled to receive payment.
Conclusion
A bill of exchange does not require any special wording to be legally valid. The law looks at the substance of the document rather than its exact language. Every bill normally involves a drawer, a drawee, and a payee, with the drawee becoming the acceptor upon acceptance. Understanding the roles of these parties is essential for applying the Bills of Exchange Act 1949 in commercial practice.
Short Answer Questions with Answers
1. Must a bill of exchange use the word “pay”?
Answer: No. Any words clearly directing payment are sufficient.
2. Who is the drawer?
Answer: The person who prepares and signs the bill.
3. Who is the drawee?
Answer: The person ordered to pay.
4. When does the drawee become the acceptor?
Answer: Upon accepting (signing) the bill.
5. Who is the payee?
Answer: The person entitled to receive payment.
6. Is the drawer usually the creditor?
Answer: Yes.
7. Is the drawee usually the debtor?
Answer: Yes.
8. Can the drawer and payee be the same person?
Answer: Yes.
9. What principle was established in
Morice v Lee
?
Answer: Any expression amounting to an order or direction to pay is sufficient.
10. Why does the law not require specific wording?
Answer: Because the law focuses on the substance and legal effect of the document rather than the exact words used.
Case Scenario
Sarah Furniture Sdn. Bhd. sells office furniture worth RM30,000 to Ali Trading Sdn. Bhd. on 60 days’ credit.
Sarah prepares a bill of exchange that states:
“Please pay Sarah Furniture Sdn. Bhd. RM30,000 sixty days after sight.”
Ali argues that the bill is invalid because Sarah did not use the exact words:
“I order you to pay.”
Questions
- Must a bill of exchange use the word “pay”?
- Must the wording follow a fixed format?
- Who is the drawer?
- Who is the drawee?
- Who is the payee?
Questions and Answers
Question 1
Must a bill of exchange follow a specific wording?
Answer
No.
The law does not require a bill of exchange to follow a particular form or use specific words.
As long as the words clearly amount to an order or direction to pay, the requirement is satisfied.
Legal Principle
The order to pay:
- does not have to follow a prescribed format;
- may be expressed in different words; and
- only needs to clearly instruct payment.
Example
Sarah writes:
“Please pay Sarah RM20,000 in 60 days.”
✔ Valid.
The words clearly direct payment.
Another Example
Sarah writes:
“Kindly pay Sarah RM20,000 on demand.”
✔ Valid.
Although different words are used, the meaning remains an order to pay.
Case Law
Morice v Lee (1725)
Principle
The court held that any expression amounting to an order or direction to pay is sufficient.
The exact wording is not important.
Simple Example
Instead of writing:
“Pay Sarah RM20,000.”
Sarah writes:
“Kindly pay Sarah RM20,000.”
Both have exactly the same legal effect.
Case Law
Ellison v Collingridge (1850)
Facts
The document stated:
“I promise to pay or cause to be paid.”
Held
The court held that this wording was still legally effective.
Principle
Equivalent expressions that clearly require payment are sufficient.
Simple Example
Sarah writes:
“I will pay Sarah RM15,000 or arrange for payment to be made.”
The wording still clearly creates an obligation to pay.
Case Law
Lovell v Hill (1833)
Principle
Different words may be used provided they communicate the same legal meaning.
The law focuses on the substance rather than the exact wording.
Simple Example
Instead of:
“Pay Sarah RM10,000.”
Sarah writes:
“Credit Sarah with RM10,000 in cash.”
Although the wording differs, it still directs payment.
Parties to a Bill of Exchange
Every bill of exchange normally involves three parties.
Drawer
Definition
The drawer is the person who prepares, signs, and issues the bill of exchange.
The drawer gives the order to pay.
In commercial transactions, the drawer is usually the creditor.
Example
Sarah sells furniture worth RM25,000 to Ali on credit.
Sarah prepares the bill.
Sarah is the drawer.
Drawee
Definition
The drawee is the person who is ordered to make payment.
The drawee is usually the debtor.
Once the drawee accepts the bill, the drawee becomes the acceptor.
Example
Sarah orders Ali to pay RM25,000.
Ali is the drawee.
After signing the bill,
Ali becomes the acceptor.
Payee
Definition
The payee is the person entitled to receive payment.
The payee is often the drawer but may also be another person.
Example 1
Sarah draws the bill and makes it payable to herself.
Sarah is both:
- the drawer; and
- the payee.
Example 2
Sarah draws a bill stating:
“Pay ABC Timber Sdn. Bhd. RM25,000.”
Sarah remains the drawer.
ABC Timber Sdn. Bhd. becomes the payee.
Relationship Between the Parties
Before Acceptance
Sarah sells furniture to Ali.
Sarah prepares the bill.
Ali has not yet accepted it.
Parties
- Drawer → Sarah
- Drawee → Ali
- Payee → Sarah
After Acceptance
Ali signs the bill.
Ali now becomes the acceptor.
Parties
- Drawer → Sarah
- Acceptor → Ali
- Payee → Sarah
Practical Business Example
Sarah supplies office furniture to Ali worth RM50,000.
Instead of paying immediately, Ali agrees to pay after 90 days.
Sarah prepares a bill ordering Ali to pay RM50,000 after 90 days.
Ali signs the bill.
Parties
Drawer
Sarah (creditor)
↓
Drawee
Ali (debtor)
↓
Acceptor
Ali (after signing)
↓
Payee
Sarah
Comparison in Note Form
Drawer
Meaning
The person who prepares and signs the bill.
Usually
The creditor.
Main Responsibility
Orders payment.
Drawee
Meaning
The person ordered to pay.
Usually
The debtor.
Main Responsibility
Accepts and pays the bill.
Acceptor
Meaning
The drawee after accepting the bill.
Main Responsibility
Becomes primarily liable to pay.
Payee
Meaning
The person entitled to receive payment.
Usually
The drawer, but may be another person.
Key Examination Notes
No Particular Words Required
A bill does not have to use:
- “Pay”;
- “I order you”; or
- any prescribed wording.
Drawer
- Draws and signs the bill.
- Usually the creditor.
Drawee
- Person ordered to pay.
- Usually the debtor.
Acceptor
- Drawee after acceptance.
- Primarily liable.
Payee
- Person entitled to payment.
Critical Analysis
The Bills of Exchange Act 1949 adopts a practical approach by focusing on the substance of the instrument rather than its precise wording. Commercial parties often use different expressions when preparing bills of exchange. As long as the document clearly communicates an unconditional order to pay, it will generally satisfy the statutory requirements. This flexibility promotes commercial efficiency while preserving legal certainty.
Practical Applications
These principles are commonly encountered in:
- supplier credit arrangements;
- trade financing;
- banking transactions;
- domestic sales;
- international commerce.
Five Real-Life Examples
Example 1
A supplier prepares a bill stating:
“Please pay RM80,000 after 90 days.”
✔ Valid.
Example 2
A manufacturer writes:
“Kindly pay RM25,000 on demand.”
✔ Valid.
Example 3
A wholesaler draws a bill ordering a retailer to pay after 60 days.
The wholesaler is the drawer.
Example 4
The retailer signs the bill.
The retailer becomes the acceptor.
Example 5
The wholesaler names its bank as the payee.
The bank becomes entitled to receive payment.
Conclusion
A bill of exchange does not require any special wording to be legally valid. The law looks at the substance of the document rather than its exact language. Every bill normally involves a drawer, a drawee, and a payee, with the drawee becoming the acceptor upon acceptance. Understanding the roles of these parties is essential for applying the Bills of Exchange Act 1949 in commercial practice.
Short Answer Questions with Answers
1. Must a bill of exchange use the word “pay”?
Answer: No. Any words clearly directing payment are sufficient.
2. Who is the drawer?
Answer: The person who prepares and signs the bill.
3. Who is the drawee?
Answer: The person ordered to pay.
4. When does the drawee become the acceptor?
Answer: Upon accepting (signing) the bill.
5. Who is the payee?
Answer: The person entitled to receive payment.
6. Is the drawer usually the creditor?
Answer: Yes.
7. Is the drawee usually the debtor?
Answer: Yes.
8. Can the drawer and payee be the same person?
Answer: Yes.
9. What principle was established in
Morice v Lee
?
Answer: Any expression amounting to an order or direction to pay is sufficient.
10. Why does the law not require specific wording?
Answer: Because the law focuses on the substance and legal effect of the document rather than the exact words used.
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