Judge Family Transaction
Alice issues a bill of exchange directing Bob to pay $5,000 to her supplier. The supplier presents the instrument to Bob, who honors it. Alice remains secondarily liable if Bob dishonors.
Also known as: bills of exchange · draft
Written by attorneys · grounded in primary & secondary sources — see below
An order instrument by which one party directs another to pay a sum certain to a third party or bearer. The instrument creates an obligation on the drawer while authorizing the drawee to make payment upon presentment.
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Alice issues a bill of exchange directing Bob to pay $5,000 to her supplier. The supplier presents the instrument to Bob, who honors it. Alice remains secondarily liable if Bob dishonors.
A merchant issues a bill of exchange drawn on a supplier to settle an account. The holder presents the instrument for payment. The supplier refuses, prompting the holder to pursue the drawer under the instrument.
Boulder Construction issues a bill of exchange ordering Baxter Dynamics to pay $50,000 to Brookside Pharmaceuticals. When the instrument is presented, Baxter Dynamics refuses payment claiming it is not the proper party. The holder sues, establishing that Baxter Dynamics qualifies as the drawee because it was the person ordered in the draft to make payment.
Belinda Baxter signs a bill of exchange directing a bank to pay funds to a vendor on behalf of her company. After the bank dishonors the instrument, the vendor sues Baxter personally. The court holds Baxter liable as drawer because she signed the draft as the person ordering payment.
A bill of exchange is an order instrument directing a drawee to pay, whereas a promissory note is a promise by the maker to pay. The hornbook distinguishes drafts, historically called bills of exchange, from notes as the two main classes of negotiable instruments.
The drawer is the person who signs or is identified in the draft as ordering payment. Under the UCC definition, the drawer incurs liability to pay if the drawee dishonors the instrument.
The drawee is the person ordered in the draft to make payment. The UCC defines this party as the one to whom the order is addressed.