Page 169 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes Self Assessment

State whether the following statements are true or false:
1. A cheque can be either in written form or in oral form.
2. A cheque can be conditional or unconditional.

3. The amount on the cheque should be written in both numbers and figures.
4. A cheque is valid for a period of 6 months.
5. Drawer is the one who draws the cheque.
6. A crossed cheque can be encashed either at the cash counter of the bank or to the payee’s
account.
7. Under Negotiable Instruments Act, writing one’s name at the back of the instrument is
called an “endorsement”.
10.2 Bills of Exchange

Bills of exchange are similar to cheques and promissory notes. They can be drawn by individuals
or banks and are generally transferable by endorsements.

Did u know? The difference between a promissory note and a bill of exchange is that a bill
of exchange is transferable and can bind one party to pay a third party that was not
involved in its creation.

If these bills are issued by a bank, they can be referred to as bank drafts.
If they are issued by individuals, they can be referred to as trade drafts.

10.2.1 Definition of Bills of Exchange

A bill of exchange can be defined as follows:
“A non-interest-bearing written order used primarily in international trade that binds one
party to pay a fixed sum of money to another party at a predetermined future date.”

10.2.2 Special Characteristics of Bills of Exchange

An instrument, in order to amount in law to as bill of exchange, must fulfil the following
conditions:

1. It must be in Writing: A bill of exchange cannot be oral. It must always be in written
document. Although it’s not necessary to use particular words and nor is it required to set
form in which alone a bill of exchange can be drawn. Provided the document fulfils the
above conditions laid down by law it will amount to a bill of exchange, whatever its form
may be. Writing includes printing.
2. Signed by the Maker: A bill, not signed by the drawer, is regarded in law as an “inchoate
bill”. The signature of the drawer may not be appended to the document at the time it is
drawn but until this is done, the bill is not inchoate and ineffective in law. So, no action can
be brought by a holder against acceptor on a bill which is unsigned by the drawer. Signature
includes a mark and even an impressed or litho stamp.

164 LOVELY PROFESSIONAL UNIVERSITY