Types of Bills

Bills may be classified into certain types as follows

Genuine Trade Bill: When a bill is drawn, accepted or endorsed for consideration, it is a genuine trade bill. ‘A’ sells goods to ‘B’ on credit and ‘A’ owes the same amount of money to ‘C’. Accordingly, ‘B’ agrees to pay after 3 months time. To conclude the transaction, A draws a bill on B directing B to pay the money after 3 months to C. This bill is backed by consideration and it is based on a genuine transaction.

 


Accommodation Bill: A is in need of Rs. 5,000/-. He approaches his friend B for borrowing the amount. B is not in a position to lend but he suggests that A should draw a bill on B which he would accept. Accordingly, ‘A has drawn the bill and ‘B’ accepted it. ‘A’ in turn got the bill discounted with his banker and took the money. On due date, ‘A’ would pay Rs. 5,000 to ‘B’ to enable him to meet the bill. This bill is arranged to accommodate A. This is an accommodation bill.

(Banks, now-a-days normally do not discount these kinds of bills.)

 

Fictitious Bill: When the name of the drawer or the payee or both is fictitious in a bill, the bill is called a fictitious bill. When both the drawer and the payee of a bill are fictitious persons, the acceptor is liable to a holder in due course if the holder in due course can show that the signature of the supposed drawer and that of the first endorser (payee) are in the same handwriting.

 

Documentary Bill and Clean Bill: When documents of title to the goods or other documents, e.g., invoice, insurance policy, etc., are attached to the bill, such a bill is called documentary bill. Such documents are delivered to the buyer only on acceptance or payment as desired by the drawer of the bill. When no document relating to the goods (for the transaction of which the bill of exchange is being drawn) is attached to the bill, it is called a clean bill.

 

Escrow: When a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, i.e., not for the purpose of transferring absolutely the property therein, it is called escrow. As between immediate parties, when an instrument is delivered, conditions agreed upon are fulfilled. The liability to pay in case of an escrow does not arise if the conditions agreed upon are not fulfilled, or the purpose for which the instrument was delivered is not satisfied. This, however, does not affect the rights of a holder in due course (section 46).

 

Bills in Sets: A bill is sometimes drawn in more than one original copy especially when such copies are required by various parties as in a foreign trade transaction. Such bills are said to be ‘bills in sets. The implications of this kind of bill are as follows:

a) Each copy (called part of the bill) of the bill is equally good and once it is accepted or paid, the other parts or copies become ineffective.

b) Each part of a bill in a set must be numbered and must contain a provision that it shall continue to be payable only so long as the other parts remain unpaid.

c) Each part must contain reference to the other parts. The drawer must sign each part of the bill and deliver. All the parts of the whole set need not be accepted.

d) When a person accepts or indorses different parts of the bill in favour of different persons, he and the subsequent indorses of each part are liable on such parts as if these parts were separate bills.

e) When two or more parts of a set are negotiated to different holders in due course, he who first acquires title to his part is deemed to be the true owner of the bill. He is entitled to (i) possession of all other parts, and (ii) claim the money represented by the bill.

 

Specimen forms of foreign bills (bills in sets)

 

Specimen 1

 

London

15 March 2019

£10,000/-

Three months after sight of this first of exchange (second and third of the same tenor and date unpaid) pay to the order of Messers Bombay Import and Export Company Limited, Mumbai, the sum of Pound Sterling ten thousand only, value received.

Stamp

London Trading Co. Ltd.

(Sd/- on stamp)

To

M/s India Machinery Company

Mumbai

 

 

The bill is drawn by the London Trading Company directing India Machinery Company of Mumbai to pay £10,000 to M/s Bombay Import and Export Company. The first part is shown here. The second part of a similar bill is shown below:

 

Specimen 2

 

London

15 March 2019

£5,000/-

Three months after sight of this second of exchange (first and third of the same tenor and date unpaid) pay to the order of Mr. Banerjee, Kolkata, the sum of Pound Sterling five thousand only, value received.

Stamp

A.B. Smith

(Sd/- on stamp)

To

M/s India Machine Tools Company

Kolkata

 

Mayank Rai

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