Section 5 defines a bill of exchange as “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to order of, a certain person or to the bearer of the instrument.” A bill of exchange is also called a draft.

There are three parties to a bill of exchange, namely drawer, drawee and payee. The maker of the bill is called the drawer, the person who is ordered to pay is called the drawee and the person to whom or to whose order the money is directed to be paid is called the payee. In some cases drawer and payee may be one person. The payee, or if, it is endorsed; endorsee is called the holder of the bill. The drawee of a bill of exchange who has signified his assent to the order of the drawer is called the acceptor. The acceptor becomes liable to the holder only when he has communicated his assent but not before.

Essentials of a bill of exchange:

In order that an instrument may be called a bill of exchange it should satisfy the following conditions:

1. It must be in writing.


2. It must contain an unconditional order to pay.

3. It must be signed by the drawer.

4. There must be three parties to the instrument and the parties must be certain.

5. The order must be to pay a certain sum of money.


6. The instrument must contain an order to pay money and money only.

7. It must comply with the formalities as regards date, consideration, stamp etc.

A bill of exchange like a promissory note may be written in any language. It may be written in any form of words provided the requirements of the section are complied with.