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Negotiable Instruments: Definition of a Bill of Exchange
A bill of exchange is a written negotiable instrument containing an unconditional order made by one person (the drawer) directing another person (the drawee) to pay a fixed sum of money to a specified person (the payee) or to the bearer of the bill, either on demand or at a future determinable time.
Under section 3(1) of the Bills of Exchange Act 1949, a bill of exchange is defined as:
“An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.”
Main Parties in a Bill of Exchange
1. Drawer
The person who creates and signs the bill and orders payment.
2. Drawee
The person directed to pay the money.
3. Payee
The person who receives the payment.
Example
Case Scenario
Ali sells goods worth RM15,000 to Bala. Ali draws a bill of exchange ordering Bala to pay RM15,000 to Chia within 30 days.
In this scenario:
Essential Characteristics of a Bill of Exchange
Simple Explanation
A bill of exchange is basically:
A written order requiring one person to pay a certain amount of money to another person.
A bill of exchange is a written negotiable instrument containing an unconditional order made by one person (the drawer) directing another person (the drawee) to pay a fixed sum of money to a specified person (the payee) or to the bearer of the bill, either on demand or at a future determinable time.
Under section 3(1) of the Bills of Exchange Act 1949, a bill of exchange is defined as:
“An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.”
Main Parties in a Bill of Exchange
1. Drawer
The person who creates and signs the bill and orders payment.
2. Drawee
The person directed to pay the money.
3. Payee
The person who receives the payment.
Example
Case Scenario
Ali sells goods worth RM15,000 to Bala. Ali draws a bill of exchange ordering Bala to pay RM15,000 to Chia within 30 days.
In this scenario:
- Ali = Drawer
- Bala = Drawee
- Chia = Payee
Essential Characteristics of a Bill of Exchange
- Must be in writing
- Must contain an unconditional order
- Must be signed by the drawer
- Must direct another person to pay
- Payment must involve a fixed sum of money
- Payment must be made:
- on demand, or
- at a fixed/determinable future time
- Must identify the payee or bearer
Simple Explanation
A bill of exchange is basically:
A written order requiring one person to pay a certain amount of money to another person.
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