Characteristics of Bills of Exchange

1. Must be in Writing: A bill of exchange shall be valid only if it is written, mere verbal agreement or verbal promise to pay is not under the ambit of bills of exchange, it should be a written document where both parties agree to the contract to make it legally enforceable.

2. Promise to Pay Must be Unconditional: Bills of exchange payable on performance and non-performance of any event or act, or happening or non-happening of the event is not categorized as a bill of exchange. Promise to pay should be definite and unconditional only then it will be a valid bill of exchange.

3. Duly Stamped and Signed: A bill of exchange should be signed by the maker and drawee, as signatures signify that both parties agree to the terms of the bill of exchange. If the bill of exchange is not signed it will be incomplete and infective and none of the parties can legally enforce the bill.

4. Must Not be Vague: The conditions and language of the bill of exchange shall not be vague and the conditions or period mentioned must be proper if terms of the bill of exchange are vague or indefinite which cannot be ascertained with reasonable certainty of the intention of the parties, then bill of exchange is not enforceable by law.

5. Parties in a Bill of Exchange Transaction Must be Certain: Parties in a bill of exchange transaction may not always be three different parties, one can play the role of two different parties but there must be two different parties in any case. Also as per RBI guidelines, a bill of exchange can’t be made payable to bearer on demand.

Bills of exchange is defined as a type of written trading instrument that contains an unconditional order to pay a particular amount of money written on the bill to the person at a pre-agreed date which is mentioned on the face of the bill and is signed by the acceptor of the bill of exchange. Bills of Exchange can be of many types ranging from Trade Bills, Documentary Bills, Foreign Bills, Supply Bills, etc.

Key takeaways from Bills of Exchange:

• Bills of exchange is a negotiable instrument governed by the Negotiable Instrument Act, 1881.
• Bills of exchange are also legally enforceable if it is duly signed and stamped, which builds trust among both parties and any business transaction comes into action without any hassle.
• Under bills of exchange in order to complete a transaction grace period of three days is also given to the creditor to discharge his liabilities on time.