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Negotiable Instruments: Drawer and Payee as the Same Person in a Bill of Exchange
Definition
Under section 3(1) of the Bills of Exchange Act 1949, a bill of exchange is:
“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.”
A bill of exchange therefore involves:
Case Scenario
Ali sells goods worth RM10,000 to Bala on credit. To secure payment, Ali draws a bill of exchange stating:
“Pay Ali or order RM10,000 within 30 days.”
Bala signs the bill to indicate acceptance.
The issue arises whether Ali can legally be both the drawer and the payee of the same bill of exchange.
Facts
Q1: Who created the bill of exchange?
A: Ali.
Q2: Who was ordered to pay the money?
A: Bala.
Q3: To whom was payment to be made?
A: Ali himself.
Q4: What did Bala do after receiving the bill?
A: Bala accepted the bill by signing it.
Q5: What legal issue arises?
A: Whether the drawer and payee can be the same person.
Application
In a bill of exchange:
Drawer
The person who creates and signs the bill.
Drawee
The person ordered to make payment.
Payee
The person entitled to receive payment.
The law does not require the drawer and payee to be different persons.
Thus:
Party Role
Ali
Drawer and Payee
Bala
Drawee
Bala after acceptance
Acceptor
Mechanism of the Bill
Step 1: Drawing
Ali draws the bill ordering Bala to pay RM10,000.
Step 2: Acceptance
Bala signs the bill.
After signing:
On maturity:
Critical Analysis
Allowing the drawer and payee to be the same person supports commercial convenience because:
✔ there is a valid order to pay,
✔ the amount is certain, and
✔ the drawee accepts liability.
Solution to the Case Scenario
✔ Ali can legally be both the drawer and payee of the bill.
✔ Bala becomes liable once he accepts the bill.
✔ Ali is entitled to receive payment on maturity or transfer the bill through negotiation.
Key Takeaway
A drawer and payee may be the same person in a bill of exchange.
➡️ The drawer creates the order for payment, while the payee receives the payment. The law allows both roles to be held by one person.
Definition
Under section 3(1) of the Bills of Exchange Act 1949, a bill of exchange is:
“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.”
A bill of exchange therefore involves:
- a drawer,
- a drawee, and
- a payee.
Case Scenario
Ali sells goods worth RM10,000 to Bala on credit. To secure payment, Ali draws a bill of exchange stating:
“Pay Ali or order RM10,000 within 30 days.”
Bala signs the bill to indicate acceptance.
The issue arises whether Ali can legally be both the drawer and the payee of the same bill of exchange.
Facts
Q1: Who created the bill of exchange?
A: Ali.
Q2: Who was ordered to pay the money?
A: Bala.
Q3: To whom was payment to be made?
A: Ali himself.
Q4: What did Bala do after receiving the bill?
A: Bala accepted the bill by signing it.
Q5: What legal issue arises?
A: Whether the drawer and payee can be the same person.
Application
In a bill of exchange:
Drawer
The person who creates and signs the bill.
Drawee
The person ordered to make payment.
Payee
The person entitled to receive payment.
The law does not require the drawer and payee to be different persons.
Thus:
- Ali may validly draw the bill,
- and also make himself the payee.
Party Role
Ali
Drawer and Payee
Bala
Drawee
Bala after acceptance
Acceptor
Mechanism of the Bill
Step 1: Drawing
Ali draws the bill ordering Bala to pay RM10,000.
Step 2: Acceptance
Bala signs the bill.
After signing:
- Bala becomes the acceptor,
- Bala is legally liable to pay.
On maturity:
- Bala pays Ali RM10,000.
- Ali may negotiate the bill to another person by endorsement.
Critical Analysis
Allowing the drawer and payee to be the same person supports commercial convenience because:
- sellers often draw bills to secure debts owed to themselves,
- bills of exchange function as evidence of credit transactions,
- negotiability allows future transfer if needed.
✔ there is a valid order to pay,
✔ the amount is certain, and
✔ the drawee accepts liability.
Solution to the Case Scenario
✔ Ali can legally be both the drawer and payee of the bill.
✔ Bala becomes liable once he accepts the bill.
✔ Ali is entitled to receive payment on maturity or transfer the bill through negotiation.
Key Takeaway
A drawer and payee may be the same person in a bill of exchange.
➡️ The drawer creates the order for payment, while the payee receives the payment. The law allows both roles to be held by one person.
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