Promissory Notes, Bill of Exchange and Cheque all are negotiable instrument. The holder can claim payment on them subject to conditions that the holder takes them: -

(i)       without notice of defect in the title of the transferor, i.e. in good faith.

(ii)      for consideration and

(iii)     Before maturity.


Example: If A steals a bill of exchange and passes it on to B who is not aware of A's mode of acquiring the bill and who takes it for the value and before the due date of the bill, B will be entitled to get payment on the bill. Here B is a holder in due course.

A holder in due course always gets a good title in case of forgery. Moreover whoever gets the bill after the holder in due course will also get a good title to it; it has been purged of all defects.

The instrument may be passed on from one person to another by endorsement and delivery. The liability of the endorser to subsequent parties is same as in the case of endorsement of cheque.

Thus, if a bill of exchange is dishonored, i.e. if payment is not made on the due date by the promisor (drawee in case of bill of exchange), money can be claimed from any of the previous endorsers, the payee and the maker of the instrument. 

Demo Classes of Accounts (CA/CMA/CS/B.Com/11-12th) by CA/CMA Santosh Kumar Sir

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