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bills of exchange summary

bills of exchange summary - BILLS OF EXCHANGE DEFINING IT 1...

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BILLS OF EXCHANGE: DEFINING IT 1. Students have tended to have difficulty with this topic but this is unnecessary. 2. Why? Because the essential elements and nature of a bill of exchange can be relatively easily explained and because this memorandum is designed to discuss them in a practical context. By understanding their practical uses students will better understand them. 3. The first thing to note is a bill of exchange is a method to make payment in a commercial transaction. This is similar to the use of a cheque, that is to make payment. It has another use and that is to raise finance. These uses will be practically explained shortly. 4. A bill of exchange is a negotiable instrument. The definition of a negotiable instrument can be discussed in its constituent parts. Lets look at each part in turn, An instrument containing a right to receive payment, Transferable so as to give title to a transferee who takes it honestly and for value, Which makes the transferee the true owner who has the right to receive payment on the instrument itself, 5. The formal legal definition of a bill of exchange is contained in S8 of the Bills of Exchange Act. You should look at this definition and make an attempt to understand what it means. It says: “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 date a sum certain in money to or to the order of a specified person, or to bearer.” 6. You should be able to see, if you understand the definition, that one part of it refers to a right to receive payment. This right belongs to the holder of a bill. 7. The right to receive payment on the bill is an important one. That’s why it is important to focus on the “holder” of the bill and how they received it. 8. Thus if A transfers the bill to B in circumstances where they are a holder, then B has a right to receive payment under the bill.
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DISCUSSION 1. You need to consider the nature of the definition contained in S8 Bills of Exchange Act. There are a number of elements to it and each need to be considered in turn. 2. It is an unconditional order for payment. This means that payment must not be conditional in any way. Payment must be made to the holder. 3. You should also note that the order is addressed by one party to another party who is directed to make payment. 4. Further, the order to make payment by the party referred to in 4. is for the benefit of another party. This is the party referred to in the definition thus to or to the order of a specified person, or to the bearer .” 5. Hopefully this will make clear to you that there are three parties involved on the bill: The party that creates the bill ( the drawer ), The party that the order to make payment is addressed to ( the drawee ) and,
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