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C H A P T E R

Bill of Exchange

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Bill of Exchange It is a written instrument directing a person to pay the amount specified
in the bill to or to the order of specified person or to the bearer of the
instrument.
2. Promissory Note It is an instrument in writing being an undertaking by the maker to pay
the specified sum of money to or to the order of certain person or to the
bearer of the instrument.
3. Trade Bill It is the bill drawn and accepted for a business transaction.
4. Drawer The maker of a bill of exchange is known as the drawer.
5. Drawee The person on whom the bill is drawn and is thereby directed to pay
is known as the drawee.
6. Maker Maker is the person who makes the Promissory Note.
7. Payee Payee is the person named in the bill of exchange to whom the amount
is payable.
8. Cheque A cheque is an unconditional order, drawn upon a specified banker,
signed by the maker, directing the bank to pay on demand a certain
sum of money only to or to the order of a person or to the bearer of
the instrument.
9. Endorsement It means transfer of the instrument (bill or promissory note or cheque)
to another person.
10. Endorser The person who endorses the instrument is called the endorser.
11. Endorsee The person in whose favour the instrument is endorsed is called the
endorsee.
12. Tenor or Tenure of Bill The period in between the dates of drawing the bill and when it becomes
due for payment.
13. Date of Maturity The date on which the bill becomes due for payment.
14. Days of Grace A period of three days post date of maturity. It is a practice to add the
days of grace.
15. Honouring the Bill It means meeting the obligation to pay.
16. Dishonour of Bill A situation when the instrument (Bill) is not paid by the drawee on the
date of maturity.
17. Retirement of Bill It means that the drawee pays the bill before it becomes due
for payment.
18. Renewal of Bill It means replacement of the instrument with a new instrument with
the consent of the holder.