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Transferability
Negotiable instruments can be freely transferred from one person to another.
The transferee obtains full rights to the instrument, often with greater ease than
other forms of property.
Holder in Due Course
A person who acquires the instrument in good faith, for value, and without
any knowledge of prior defects (called the "holder in due course") enjoys special
protection under the law. This means they can claim the instrument's value even if
there were problems with its earlier transfers.
Title Transfer
When a negotiable instrument is transferred, the holder receives a clear and
good title, free of any previous defects, assuming it is transferred in good faith.
Payment Promise

A negotiable instrument includes an unconditional promise or order to pay a certain

amount of money, either on-demand or at a future date.

Certainty of Amount

The amount to be paid must be clearly specified on the instrument, without any ambiguity.

Negotiability by Delivery or Endorsement

Depending on the type of instrument, it can be transferred either by simple delivery (in
the case of bearer instruments) or by endorsement and delivery (in the case of order
instruments).

No Notice to Debtor

The transfer of a negotiable instrument does not require any notice to be given to the
debtor or the original issuer of the instrument.
In Writing

The promissory note must be in writing. Oral promises are not valid for a promissory note.


Unconditional Promise to Pay

The note must contain an unconditional promise by the maker to pay a certain sum of money. It


cannot be dependent on any condition or event.

Example: "I promise to pay ₹5,000 to Mr. A" is valid, but "I promise to pay ₹5,000 if I win the


lottery" is not valid.

Definite and Certain Amount

The amount to be paid must be certain and specified in the note. It cannot be vague or subject to


future determination.

Example: "I promise to pay ₹10,000" is valid, but "I promise to pay a reasonable amount" is not.

Payable in Money Only

The payment must be made in money (currency). Promising to pay in goods, services, or any
other form is not valid.

Example: "I promise to pay ₹8,000" is valid, but "I promise to deliver 10 bags of rice" is not.

Maker's Signature

The promissory note must be signed by the maker, as this signature represents the acceptance of
the obligation to pay.

Without the maker's signature, the note is not legally binding.

Name of the Payee

The person to whom the payment is to be made (the payee) must be clearly identified or
specified in the note. The payee can be an individual or a legal entity.

Example: "Pay to Mr. B" is valid

Payable on Demand or at a Fixed Future Date

The promissory note must state whether the payment is to be made on demand (when
the payee asks for it) or at a specified future date.

Example: "Payable on January 1, 2025" or "Payable on demand" are valid.

Stamped as per Legal Requirements

The promissory note must be adequately stamped as per the applicable stamp duty
laws in India.
Example of a Bill of Exchange Transaction

A seller (drawer) supplies goods to a buyer (drawee) and draws a bill

for ₹10,000 payable to the seller's bank (payee). The buyer (drawee)

accepts the bill, agreeing to pay ₹10,000 to the payee at the specified

date.
1. In Writing

A bill of exchange must be in writing, whether handwritten, typed, or printed. Oral

agreements do not count as a valid bill of exchange.

2. Unconditional Order

The bill must contain an unconditional order to pay. This means the payment cannot be
subject to any condition. For example, "Pay ₹10,000 on demand" is valid, while "Pay
₹10,000 if the goods are satisfactory" is not valid.

3. Signature of the Drawer

The bill must be signed by the person who draws it (the drawer). This signature binds the
drawer to the order for payment.
4. Specific Amount

The bill must state a specific and definite amount of money to be paid. The amount must be clearly
mentioned, without ambiguity or reference to uncertain sums.

5. Parties Involved:

There must be three distinct parties in a bill of exchange

o Drawer: The person who makes the order to pay.

o Drawee: The person who is directed to pay.

o Payee: The person to whom the payment is to be made.

The same person can be both the drawer and payee, but all three roles must be clearly defined.

6. Payable on Demand or at a Future Date

The bill must specify when the payment is to be made, either on-demand (immediate payment) or at a
future specified date.
7. Acceptance

For the bill to be binding on the drawee, they must "accept" the bill by signing it, thus
agreeing to pay the amount mentioned on the specified date.

8. Payment in Money Only

The bill must involve the payment of money only. It cannot involve the exchange of
goods or services, nor be payable in any form other than money.

9. Certain Date and Time for Payment

The time of payment must be certain, either on-demand or at a fixed date. Uncertain
future dates, such as "on the occurrence of an event," are not acceptable.

10. Stamped as per Law

The bill must be duly stamped as required by the Indian Stamp Act, to ensure it is
legally enforceable
Aspect Promissory Note Bill of Exchange Cheque
Definition A written promise A written order A written order
by one party to pay from one party to directing a bank to
a certain amount another to pay a pay a certain
of money to specific sum to a amount from the
another party. third party. drawer’s account.

Parties Involved Two: Maker Three: Drawer Three: Drawer

(promisor) and (issuer), Drawee (issuer), Drawee
Payee (promisee). (payer), and Payee (bank), and Payee
(receiver). (receiver).

Nature of Promise to pay. Order to pay. Order to pay.

Instrument

Liability Primary liability lies Primary liability lies Primary liability lies
with the maker with the drawee with the bank
(promisor). (payer). (drawee).

Payment Can be on-demand Usually at a future Always payable on

or at a future date. date, but can be demand.
Aspect Promissory Note Bill of Exchange Cheque

Consideration Always presumed to Always presumed to Always presumed to

exist. exist. exist.
Requirement of Not required, as the Acceptance by the No acceptance
Acceptance maker promises to drawee is required for needed, as it's drawn
pay. the bill to be valid. on a bank.

Dishonor The payee can sue the The payee can sue the The payee can sue the
Consequence maker directly. drawer if the drawee drawer if the cheque
does not accept or bounces.
pay.
Use Case Often used in personal Used in trade Commonly used for
loans or commercial transactions, everyday payments,
transactions. especially such as bills and
international trade. purchases.
Interest May include interest May include interest No interest; it’s just a
(if specified). (if specified). method of payment.

Transferability Can be transferred via Can be transferred via Can be transferred via
endorsement or endorsement or endorsement, if
delivery. delivery. payable to order.