Drawer Liability on Bills and Cheques Explained

A bill of exchange and a cheque are types of negotiable instruments. These financial documents involve three parties: the drawer, the drawee, and the payee (or holder).

• Drawer: The person who writes and signs the bill or cheque, ordering the drawee to pay.
• Drawee: The person or entity ordered to pay (e.g., a bank in the case of a cheque). The drawee becomes the 'acceptor' once they agree to pay the bill.
• Payee/Holder: The person to whom the payment is to be made.

Understanding Drawer's Primary Responsibility

The drawer's liability is a crucial concept in understanding how bills of exchange and cheques work. While the drawee is primarily expected to pay, the drawer provides a guarantee of payment.

Analyzing Drawer's Liability Options:

Let's look at the options provided:

• Option 1: Liability to compensate the holder incase of dishonour.

  This refers to the situation where the drawee fails to pay the bill or cheque when it is presented for payment (this is called dishonour). In such cases, the drawer is legally obligated to compensate the holder for the amount. This is a fundamental secondary liability of the drawer, acting as a backup payment guarantee.

• Option 2: Liability to pay the amount at maturity.

  This is primarily the responsibility of the drawee (or acceptor, if they have accepted the bill). The drawer's liability kicks in only if the drawee fails to pay at maturity.

• Option 3: Liability to provide sufficient funds to the drawee.

  This is an obligation between the drawer and the drawee, stemming from their underlying relationship (e.g., the drawer having an account with the bank). It's not the drawer's direct liability *to the holder* in case of default.

• Option 4: Liability to pay the holder without any condition.

  The drawer's liability is not unconditional. It arises specifically upon the dishonour of the instrument by the drawee after proper presentment, and usually requires notice of dishonour to be given to the drawer.

Conclusion on Drawer's Liability

The core guarantee provided by the drawer when issuing a bill of exchange or cheque is that payment will be made. If the drawee fails to honour the instrument, the drawer steps in. Therefore, the primary liability is to make good the payment (compensate the holder) when the bill or cheque is dishonoured.