by Bill of exchange is a written, unconditional order directing one party to pay a specific amount of money to another party, either on demand or at a predetermined future date. It is a crucial instrument in trade and finance, enabling credit transactions and smooth financial settlements. Several parties are involved in the lifecycle of a bill of exchange, each playing a specific role.
Drawer
The drawer is the party that creates or issues the bill of exchange. Typically, the drawer is the creditor or seller who is owed money. By issuing the bill, the drawer orders the drawee (debtor) to pay a specified amount to the payee. The drawer holds primary responsibility for ensuring the bill’s legality and enforceability.
Role:
-
- Initiates the bill of exchange.
- Specifies the amount, date, and parties involved.
- Can be the payee if the drawer intends to receive the payment directly.
Example:
If a seller (A) supplies goods on credit to a buyer (B), the seller (A) becomes the drawer by drafting a bill of exchange for the owed amount.
Drawee
The drawee is the party upon whom the bill of exchange is drawn, usually the debtor. The drawee is required to accept the bill and fulfill the payment obligation to the payee. If the drawee fails to honor the bill, they may be held legally liable.
Role:
-
- Pays the specified amount as per the terms of the bill upon acceptance.
- Becomes liable to make the payment after accepting the bill.
Example:
In the case above, the buyer (B) who owes money to the seller (A) is the drawee.
Acceptor
The acceptor is the drawee who formally agrees to honor the bill of exchange by signing it. By accepting the bill, the drawee confirms their willingness to pay the specified amount on the due date. The acceptor becomes primarily liable to make the payment, replacing the drawer’s obligation.
Role:
-
- Acknowledges the bill by signing it.
- Assumes the responsibility of making the payment to the payee.
Example:
If the buyer (B) signs the bill of exchange presented by the seller (A), B becomes the acceptor.
Payee
Payee is the party to whom the payment is to be made. The payee can be the drawer, a third party, or any other designated recipient. The payee holds the bill and can present it for payment upon maturity.
Role:
-
- Receives the payment specified in the bill.
- Holds the bill until the payment is due.
Example:
In the seller-buyer scenario, the seller (A) may name themselves as the payee or nominate a third party (e.g., a financial institution) as the payee.
Additional Notes:
- Endorser: If the payee transfers the bill to another party, they become the endorser.
- Endorsee: The party to whom the bill is transferred is the endorsee.
- Holder in Due Course: A third party who acquires the bill for value and in good faith is termed a holder in due course.
