This document defines a bill of exchange as a written order from a creditor (drawer) directing a debtor (drawee) to pay a specified sum of money to a designated person (payee). It outlines the key parties and elements of a bill of exchange, including that it must be in writing, signed by the drawer, contain an unconditional order to pay a certain amount of legal tender to a definite person or order. The document also compares bills of exchange to promissory notes, noting differences in the number of parties, liability, acceptance requirements, and ability to be drawn as bearer instruments or in sets.

1. Bill of exchange
Legal Environment of Business

2. Prepared By
Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com
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3. Definition
• “A bill of Exchange is an
instrument in writing
containing the
unconditional order, signed
by the maker, directing a
certain person to pay a
certain sum of money only
to or to the order of a
certain person or to the
bearer of the instrument”.

4. Definition
• Thus bill of exchange is an
order from the creditor to
the debtor to pay a
specified amount to a
person mentioned
therein.

5. Parties of Bill
• The maker of bill of
exchange is called the
Drawer.
• The person who is
directed to pay is called
Drawee.
• The person who will
receive the money is
called the Payee.

6. Essential elements of bill of exchange
• The instrument must be in
writing.
• The instrument must contain
an order to pay, which is
expressed and unconditional.
• There must be three parties,
drawer, drawee and payee
and they must be certain and
definite individuals.
• The instrument must be
signed by the drawer.

7. Essential elements of bill of exchange
• The amount of money to be
paid must be certain.
• The payment must be in the
legal tender money of India.
• The money must be payable
to a definite person or
according to the order.
• It must comply with the
formalities as regards date,
consideration, stamps etc.

9. Difference between promissory note and bill of
exchange
• There are two parties,
promisor and promise in a
promissory note while
there are three parties,
payee, drawee and drawer
in a bill of exchange.
• A promissory note is an
unconditional promise to
pay while a bill of exchange
is an unconditional order to
pay.

10. Difference between promissory note and bill of
exchange
• In promissory note, liability of
the maker is primary and
absolute while liability of the
drawer of bill of exchange is
secondary and conditional.
• A promissory note cannot be
made payable to the maker
himself while the drawer and
the payee must be the same
in bill of exchange.

11. Difference between promissory note and bill of
exchange
• A promissory note requires
not acceptance since it is
signed by the person who is
liable to pay while the bill of
exchange requires acceptance
by the drawee before it is
presented for payment.
• A promissory note cannot be
drawn payable to a bearer
while a bill of exchange can
be so drawn provided it is not
payable to bearer on
demand.

12. Difference between promissory note and bill of
exchange
• Maker of a promissory note
stands in immediate
relation with the payee.
Drawer of a bill stands in
immediate relation with
acceptor and not the payee.
• Promissory note cannot be
drawn in sets. A bill can be
drawn in sets.