We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Understanding the Bill of Exchange: Definition and Key Features
Definition & Meaning
A bill of exchange is a written order from one party (the drawer) directing another party (the drawee) to pay a specified sum of money to a third party (the payee) at a future date. It is commonly used in international trade and can be transferable through endorsements. While similar to a promissory note, a bill of exchange is distinct in that it can bind one party to pay a third party not involved in its creation. In banking, a bill of exchange drawn on a bank is known as a bank draft, while one drawn on an individual or business is referred to as a trade draft. A check is a specific type of bill of exchange that is drawn on a bank account.
Table of content
Legal Use & context
Bills of exchange are primarily used in commercial transactions and international trade. They serve as a means of payment and a financing tool, allowing businesses to manage cash flow and credit. In legal practice, they may be involved in various areas, including contract law and international commerce. Users can often manage related forms and procedures through legal templates provided by services like US Legal Forms, which offer tools drafted by real attorneys to assist in creating or handling bills of exchange.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company in the United States sells goods to a buyer in Europe. They issue a bill of exchange requiring the buyer's bank to pay the seller a specified amount on a predetermined date.
Example 2: A manufacturer draws a bill of exchange on itself, promising to pay a supplier for raw materials at a future date (hypothetical example).
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Difference
California
Allows electronic bills of exchange under certain conditions.
New York
Requires specific language for international bills to be enforceable.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Promissory Note
A written promise to pay a specified amount to a payee.
Not transferable like a bill of exchange; binds only the maker.
Check
A bill of exchange drawn on a bank account.
Specifically used for immediate payment; less formal than other types.
Common misunderstandings
What to do if this term applies to you
If you are involved in a transaction requiring a bill of exchange, ensure that it includes all necessary elements, such as the amount, dates, and signatures. You can utilize US Legal Forms to access templates that can help you create a valid bill of exchange. If your situation is complex or involves significant amounts, consider consulting a legal professional for tailored advice.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.