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negotiable-instruments:parties-to-bill-of-exchange

Drawer, Drawee, Acceptor and Payee : Meaning

Section 7 of the Negotiable Instruments Act

Drawer, drawee: The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the “drawee”.

drawee in case of need When in the bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case of need”.

acceptor After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”.

acceptor for honour When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts it supra protest for honour of the drawer or of any one of the indorsers, such person is called an “acceptor for honour”.

Payee The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “payee”.

As already stated, there are three parties to a bill of exchange,

  1. the person who draws the bill i.e, the maker of the bill,
  2. the person who is directed to make the payment i.e,the drawee ,
  3. the person to whom the payment is to be made i.e, the payee.

These three sets of persons who are defined in this section are called the drawer, the drawee and the payee. Of these three, the drawee is called the acceptor when he signs his assent upon the bill i.e, when he accepts the liability of payment under the bill.

Drawer

When a person after drawing a bill delivers it to the payee the former incurs a liability to the latter. Therefore, ordinarily, a person who is competent to enter into a contract draws a bill. But there is nothing to prevent a person, incompetent to contract, from drawing a bill, only in such cases the drawer incurs no legal responsibility as no obligation can be enforced against him legally.

Drawee

Drawee is generally a person who is under some obligation to the drawer, either by having in his possession funds of the drawer, or for some other reason, to make the payment as directed by the drawer. And the moment he formally accepts the bill or the cheque i.e he signifies his assent to the order of the drawer, he is called the acceptor and makes himself liable for the payment. It follows, therefore, that he should be a person competent to a contract free from all legal disabilities. The drawee is not bound to accept even when he has funds of the drawer which he is bound to pay. But a bank is bound to accept a cheque when the drawer's funds are there1). When there are several drawees all or some of them can accept. When an instrument is in the name of the manager, the other members do not become co-promisees

Acceptor

Acceptor is the drawee who has signed his assent upon the bill and delivered it to the holder.

Valid acceptance

An acceptance, in order to be valid, must be in writing signed by the acceptor on the bill delivered to the holder. In the absence of the above elements the acceptance will not be valid. A stranger can accept only for honour. Acceptance may be made after notice of drawer’s death but not of his insolvency. Apart from any mercantile usage there cannot be an oral acceptance of a hundi.

Must be in writing

An acceptance must be in writing and an oral acceptance of a bill does not make the so called acceptor liable to the holder of the bill. But there is no actual form of “acceptance” prescribed. Any word that goes to signify the assent of the drawee is sufficient. At times only the signature signifies such assent. Mere writing of figures on the hundi cannot amount to the signing of assent unless it can be proved to be so according to the mercantile usage of the locality. The ordinary rule that acceptance must be im writing is liable to one exception, that is, where a local custom hundis may be accepted verbally. But such custom must be specifically set up and proved. Unless qualified, the acceptance is general.

Signed by acceptor

The acceptor must sign his assent. Signature is essential. As stated in the previous paragraph, mere writing of the figure does not necessarily amount to signing. A man trading in a name other than his own may accept in either name. When a bill is addressed personally to one who is also a partner in a firm and he accepts it in the name of the firm, it is nevertheless not the firm's acceptance, but his own.

Similarly, when a bill is addressed to a firm, and the partner accepts the bill in the name of the firm, adding his own name, the acceptance is that of the firm and not of the partner. A bill addressed to a firm and accepted by one member of the firm in his own name is an acceptance by that member of the firm and not by the firm itself. An acceptance in its true style by a firm wrongly addressed is a valid acceptance.

Where a bill is accepted by an agent of the drawee, instead of by the drawee himself, the acceptance is good. The hand that holds the pen is immaterial if, in fact, there be authority to sign. Where a bill is addressed to an agent, and the agent accepts, the principal is not bound even though the agent had authority to accept bills.

On the bill

The assent and the signature must be written on the bill on either side of it. It cannot be done on a copy which is not a part of the bill nor on any other paper. It is advisable to write acceptance on one portion as, otherwise, the acceptor runs the risk of making himself liable to all in whose hands the different portions may fall.

Delivery

Until delivered to the holder the acceptor incurs no obligation to make the payment. When notice of acceptance has been given to the holder, or the delivery of the instrument, after acceptance, has been made, the drawee is bound to make the payment to the payee.

Acceptor for honour

It is an undertaking by a third party to accept and pay a bill of exchange that was dishonored, either by non-acceptance or by non-payment (see dishonor by non-acceptance and non payment) by the party on whom it was drawn. It is also called acceptance supra protest.

A person desiring to accept for honor must, [by writing on the bill under his hand], declare that he accepts under protest the protested bill for the honor of the drawer or of a particular endorser whom he names, or generally for honor.

Essentials of valid acceptance for honor

  1. The holder must consent to acceptance for honor. The holder cannot be compelled to assent to acceptance for honor.
  2. The bill must have been noted or protested for the non-acceptance or for better security.
  3. Acceptance for honor can be made by a person who is not already liable on the bill. Drawee of the bill when he refuses to accept the bill becomes a stranger. He may therefore accept the bill for honor of any party thereto.
  4. It must be made by writing on the bill.
  5. It must be for the whole amount due on the bill
  6. Acceptance must be for the honor of any party already liable on the bill.
  7. Acceptance for honor must be made before the bill is overdue.
  8. Stranger paying for honor must, before payment, declare before a Notary Public the party for whose honor he pays and the Notary Public must have recorded such a declaration.

Rights and liabilities of an acceptor for honour

Sec 111 and 112

  1. Acceptor for honor binds himself to all the subsequent parties to pay the amount of the bill if the drawee does not pay.
  2. The party for whose honor he accepts to pay the amount and all prior parties are liable to compensate the acceptor for honor for all loss or damage sustained by him in consequence of such acceptance.

The liability of an acceptor or honor is conditional he is liable only if the drawee fails to pay the bill. The bill of exchange should be presented at its maturity to the drawer for payment and it must be dishonored by the drawer and noted or protested for non-payment to charge an acceptor for honor2). The bill must be presented or forwarded for presentment to the drawee not later than the day next after the day of its maturity.

Payee

The person who is the real beneficiary under the bill i.e, to whom the payment is to be made is called the payee. Where the payee signs his name and makes it payable to some other person, that other person does not become the payee.

Person includes a corporation and, therefore, a corporation may be a payee. A community may also be the payee of a note. A minor may be a payee. If the payee is a fictitious person a bona fide holder may recover as upon a note payable to bearer.

1)
Vide Section 31 post
2)
Section 112

Created on 2021/01/26 08:07 by LawPage • Last modified on 2021/02/25 13:09 by LawPage