Types of Bill of Exchange: Learn with Quiz and Flashcards

Study Notes

Bills of Exchange: An Overview

A bill of exchange is a negotiable instrument, which means it can be transferred from one party to another, and it involves a promise by one party to pay a specific amount to another party. The transfer of a bill of exchange involves the transfer of ownership, and the party receiving the bill is known as the holder or the endorsee. Bills of exchange are commonly used in international trade and are subject to the rules of the Uniform Commercial Code (UCC) in the United States.

Types of Bills of Exchange

There are three types of bills of exchange:

Draft: A draft is a type of bill of exchange that is used for a single transaction and is issued by the seller to the buyer. It is also known as a sight draft and requires payment when it is presented to the buyer.
Order: An order bill of exchange is issued by the seller to a bank, which is known as the drawer. The bank then issues a sight draft to the buyer, and the seller is required to pay the amount to the bank after receiving the draft.
Usance: An usance bill of exchange is used for multiple transactions and must be paid within a specified period of time. U.S. law requires that the bill be payable within a specific period, which is not less than ten days.

Bills of exchange are negotiable instruments, which means they can be transferred from one party to another. The transfer of a bill of exchange involves the transfer of ownership, and the party receiving the bill is known as the holder or the endorsee. The holder can transfer the bill of exchange to another party, and the new holder can then transfer it to a third party. The process of transferring the bill of exchange is known as negotiation.

In the context of bills of exchange, a holder in due course is a party who purchases the bill of exchange in good faith from the previous holder, and the bill is both payable and is payable to the holder. A holder in due course is entitled to the highest priority for payment and is entitled to any interest that has accrued.

Conclusion

Bills of exchange are negotiable instruments that are commonly used in international trade and are subject to the rules of the Uniform Commercial Code (UCC) in the United States. There are three types of bills of exchange: draft, order, and usance. Bills of exchange can be transferred from one party to another, and the process of transferring the bill of exchange is known as negotiation. The highest priority for payment is given to the holder in due course, who is a party who purchases the bill of exchange in good faith from the previous holder.

Description

Learn about the different types of bills of exchange - draft, order, and usance - and how they can be transferred from one party to another through negotiation. Understand the concept of a holder in due course and the priority for payment they are entitled to.