A bill of exchange must be in writing, contain an unconditional order to pay a certain sum of money to a certain person or bearer, and be signed by the maker. There are three necessary parties to a bill of exchange: the drawer, drawee, and payee. To be a holder in due course, one must physically possess the instrument, receive it for consideration, and acquire it without knowledge of defects in title. A holder in due course can recover amounts from all previous parties and is protected against certain defenses. Similarly, a promissory note must meet certain requirements under law to be valid.

1. Bill of Exchange
 According to section 5 of the Negotiable
Instruments Act 1881, a bill of
exchange should meet the following
requirements:
 It must be in writing
 It must contain an unconditional order
 It must be signed by the maker

2. Bill of Exchange (Cont’d)
 The order must direct a certain person to
pay on demand or at a fixed or
determinable future time.
 The order must be to pay certain sum of
money.
 The money must be payable to a certain
person or to his order, or to the bearer of
the instrument.

3. Parties To A Bill Of Exchange
 Three parties are necessary to a bill of
exchange:
 The drawer, the person who is the maker
of the bill.
 The drawee, the person who is directed to
pay the bill.
 The payee, the person to whom or to
whose order the amount of the instrument
is payable.

4. Holder In Due Course (S-9)
 Following are the essential conditions to
constitute a “holder in due course”.
 He should be a holder and must be in
physical possession of the instrument.
 He should be holder for consideration. The
consideration must be of some conceivable
value sufficient to support a simple
contract. It may be past or present but it
must not be unlawful, forbidden by law or
opposed to public policy.

5. Holder In Due Course (S-9)
 He should have become the holder without
having sufficient cause to believe that any
defect existed in the title of the person
from whom he acquired the instrument.

6. Rights and Privileges Of A
Holder In Due Course
 He is protected against all defects of title of
persons from whom he receives the
instrument.
 He can recover the amount of the
instrument from all previous parties
although no consideration was paid by
some of them, or a defect of title existed in
the party from whom he took it.

7. Rights and Privileges Of A
Holder In Due Course
 Once a negotiable instrument reaches the
hands of a holder in due course, it is
purged of all defects, and the subsequent
holder is enabled to recover the amount
due thereon from all parties previous to
such holder.
 The defence on the part of the person
liable on the instrument that it has been
lost or obtained from him by means of an
offence or fraud, or for an illegal
consideration, cannot be set up against a
holder in due course.

8. Promissory Note
 According to Section-4 of Negotiable
Instruments Act 1881, a promissory
note should meet the following
requirements:
 It must be in writing.
 It must not be a bank note or a currency
note.
 It must contain unconditional undertaking.

9. Promissory Note
 It must be signed by the maker.
 The undertaking must be to pay on
demand or at a fixed or determinable
future time.
 The undertaking must be to pay a certain
sum of money.
 The money must be payable to a certain
person or to his order, or to the bearer of
the instrument.