PROMISSORY NOTE

(S.4)

A promissory note is-

(1) an instrument in writing,

(2) not being a banknote or a currency note,

(3) containing an unconditional undertaking,.

(4) signed by the maker,

(5) to pay a certain sum of money only

(i) to a certain person, or

(ii) to the order of a certain person, or (iii) to the bearer

of the instrument :

ILLUSTRATIONSPromissory Notes 1. “I promise to pay B or order Rs. 500.”2. “I acknowledge myself to be indebted to B in Rs.1,000, to be paid on demand, for value received.

Not Promissory Notes 1. Mr. B, I.O.U. Rs. 1,000.2. “I promise to pay B Rs, 500, and all other sums which shall be due to him.”3. “I promise to pay B Rs. 500, first deducting thereout any money which he may owe me,”4. “I promise to pay B Rs. 500, seven days after my marriage with .“5. “I promise to pay B Rs. 500 on D’s death provided D leaves me enough to pay that sum’

ESSENTIALS OF A VALID PROMISSORY NOTE

1. It must be in writing.

2. It must contain an undertaking to pay.

3. The undertaking to pay must be unconditional.

4. It must be signed by the maker.

5. The maker of the note must be certain.

6. The sum payable must be certain.

7. The promise should be to pay money, and money

only.

8. The payee must be certain.

SPECIMENS OF PROMISSORY NOTES

Bombay, 10th January, 1998Rs. 5,000/-ON DEMAND I Promiseto pay WILLIM

JONES THE SUCM OF FIVE THOUSAND RUPEES.

Sd/- Henery Brown

Bombay, 10th January, 1998

ON DEMAND I Promise to pay MOHAN LALVANI the sum of Rs.

5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED..

Sd/- SATISH GANDHI

Bombay, 10th January, 1998

ON DEMAND I promise to pay JOSEPH DE SOUZA or order the sum of five

thousand rupees with interest on the said sum at 10% (ten percent) per annum till

payment.

Sd/- PAUL FERNANDES

A promissory note cannot be made payable to the maker himself. Thus, a note in the form, I promise to pay myself is not a promissory note; but such a note becomes valid if its is endorsed by the maker, because then in becomes payable to bearer, if endorsed in blank, or to the encorsee or to, if specially endorsed.

BILLS OF EXCHANGE

(S. 5 & Ss. 132-133)A “Bill of Exchange” is –

(1) an instrument in writing,

(2) containing an unconditional order,

(3) signed by the maker,

(4) directing a certain person,

(5) to pay a certain sum of money only-.

(i) to a certain person, or

(ii) to the order of a certain person, or

(iii) to the bearer of the instrument.

The maker of a Bill of Exchange is called the “drawer,” and the

person thereby directed to pay’ is called “the drawee”. (S. 7) A bill of

exchange is also sometimes called a draft. When it is drawn by a bank on

its own branch, it is called a bank draft.

BILL OF EXCHANGE – ESSENTIAL REQUISITIES

The following are the eight essential requirements of

valid Bill of Exchange :

1. It must be in writing.

2. It must contain an order to pay.

3. The order contained in the bill should be unconditional.

4. It must be signed by the drawer,.

5. The drawee must be certain.a

6. The payee must be certain.

7. The sum payable must be certain.

8. It must contain an order to pay money, and money

Bombay, 10th January, 1998

Rs. 5000/-

Sixty Days after date, pay to William Smith, the sum of five thousand rupees only for value received.

ToPaul Jacobson,40, Mahatma Gandhi Road,Bombay – 400 023.

SPECIMENS OF BILL OF EXCHANGE

Bombay, 20th January, 1998

Rs. 5000/-

Sixty Days after date pay to John Smith, or order, the sum of Rupees Five thousand only for value received.

Sd/- RAM GHELACHAND

ToPaul Jacobson,40, Mahatma Gandhi Road,Bombay – 400 023.

SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE

Bombay, 20th January, 1988

Rs. 5000/-

ON Demand Pay to William Smith, the sum of Rupees five thousand only for value received.

Sd/- RAM GHELACHAND

ToPaul Jacobson,40, m. Gandhi Road,Bombay – 400 023.

Accepted :S/d- Paul Jacobson

Bombay, 20th January, 1988

Rs. 5000/-

On Demand pay to William Smith the sum of five thousand rupees only for value received

ToPaul Jacobson, Sd/-40, m. Gandhi Road, HENRY BROWNBombay – 400 023.

Accepted :S/d- Paul Jacobson

CHEQUE (S.6)

1.A cheque is a bill of exchange drawn on specified banker and

2. Not expressed to be payable otherwise: than on demand S. 6.

3. The mode of payment is special.

4.This bill of exchange must be drawn on a banker,

5. And the payment must be expressed to be made on demand.

6.Thus, all cheques are bills of exchange, but all bills are not cheques.

CROSSED CHEQUES (Ss. 123-130)

1.where a cheque bears across its face

2.an addition of the words ‘and company’, (or any

abbreviation thereof)

3.between two parallel transverse lines, or of two parallel

transverse lines simply (either with or without the words

“not negotiable”,

4.that addition is deemed to be a “crossing”), and

5.the cheque is deemed to be crossed ‘generally’ : S.

123. When a cheque is not crossed, it is called an open

cheque.

SPACEMENS OF CROSSED CHEQUE

BANK OF INDIA A/C No. 1001 BOMBAY 20th January, 1998

No. SB 7007007

Pay to William Smith or Bearer Rupees Five Thousand Only.

Sd/- Henry Brown

Rs. 5,000/-

BODY OF THE CHEQUE

SPACEMEN OF CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE BODY OF THE CHEQUE

PAYEE (Ss. 7)

The person named in the instrument, to whom or to

whose order the money is, by the instrument directed to

be paid, is called the “payee”.

PAYMENT IN DUE COURSE (S.. 10)

“Payment in due course” means payment—

(i) in accordance with the apparent tenor of

instrument.

(ii) in good faith. and

(iii) without negligence,

(iv) to any person in possession thereof,

(v) under circumstances which do not afford a

reasonable ground for believing that he is not entitled to

receive payment of the amount therein mentioned.

HOLDER (Ss. 8)“Holder” defined (S. 8)

The “holder” of a promissory note, bill of exchange. or cheque

means any person entitled his own name, to the possession thereof,

and to receive or recover the amount due thereon from the parties

thereto. Where the note, bill or cheque is lost or destroyed, its holder

is the person so entitled at the time loss or destruction.

Holder in due course (S. 9)“Holder in due course” means any person who for consideration,

became the possessor of a promissory note, bill of exchange, or

cheque, if payable to bearer, or the payee or endorsee thereof, if

payble to order, before the amount mentioned if it became payable,

and without having sufficient cause to believe that any defect existed

in the title of the person from whom he derived his title.

REQUISITES FOR HOLDER IN DUE COURSE

1. He must show that he has paid valuable consideration. Any

consideration which would support an ordinary contract would be

sufficient to constitute the transferee a holder in due course,

2 .But the donee of a pro-note, who takes it by way of a gift, is not a

holder in due course.

2. He must show that, on payment of such consideration, he

became—

(i) the possessor of the negotiable instrument, if the instrument

is pay the bearer thereof; or

(ii) the payee or endorsee thereof, if the instrument is payable

to the m,&-1

3. He must prove that he became the possessor thereof before the

amount due under the instrument became actually payable.

4. He must also show that he became the possessor thereof without

having sufficient cause to believe that any defect existed in the title of

the transferee from whom he derived his title.

NEGOTIABLE INSTRUMENTS

A ‘negotiable instrument’ means a promissory note,’ bill of exchange or cheque payable either to order or to bearer : S. 13(1).

Explanation 1.-A promissory note, bill of exchange or cheque is payable to order—which is expressed to be so payable, or which is expressed - to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.

Explanation 11,-A promissory note, bill of exchange or cheque is payable to bearer—which is expressed to be so payable, or on which the only or last endorsement is an endorement in blank.

Explanation III. Where a promissory note, bill of exchange or cheque (either originally, or by endorsement), is expressed to be payable to the order of a specified person, and not to him or the order, it is nevertheless payable to. him or his order at his option : S. 13.

A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to àne of two, ‘or one or some of several payees.

ESSENTIAL FEATURES OF NEGOTIABILITY1. The property in a , negotiable instrument, i.e., the complete right

of ownership, and not merely the possession, that is, the right to

retain it as against anyone except the true owner, passes, in the case of bearer instruments, by mere delivery, and in case of order instruments, by indôrsement and delivery..

2. The holder in due course is not in any way, affected by the defect of the title of his transferor or of any prior party.

3. The holder in due course can upon a negotiable instrument in his own name.

4. The holder in due course is not affected by certain defences which might be available against previous holders, e.g., fraud, to which he is not a party.

NEGOTIATIONWhen a promissory note, bill or cheque is transferred to any person,

so as to constitute him the holder of it, the instrument is said to be negotiated: (S. 14).

DIFFERENCE BETWEEN

BILL OF EXCHANGE & PROMISSORY NOTE

BILL OF EXCHANGE PROMISSORY NOTE

1. There are there parties:drawer, drawee and payee.-2. It contains an order to pay.3. The liability of the drawer is secondary and conditional.4. Presentment for payment and notice of dishonour are required.5. A bill of exchange can’ be accepted conditionally.6. Drawer ‘of a bill of exchange stands in immediate’ relation with the acceptor.‘7. Bills can be drawn in sets.8. A bilief exchange can be made payable to bearer, provided it is not made payable on demand.9. Foreign bills must be protested for, dishonour if so required by the law of the country of their’. origin.

1. There are only two parties: promissorand promisee.2. It contains a promise to pay.3. The liability of the maker is’ primary and absolute.4. Presentment for payment and notice of dishonour are not required.5. A promissory note cannot be made conditional.6. Drawer of a promissory note stands in immediate relation with the payee.7. Promissory notes cannot be drawn is sets.8. A promissory note cannot be made payable to bearer.9 Promissory notes need not be protested for dishonour.

POINTS OF DIFFERENCE BETWEEN

CHEQUE BILL OF EXCHANGE

CHEQUE BILL OF EXCHANGE

1. The dràwee of a cheque is always a bank.2. Cheque is payable on demand, without any days of grace.3. Cheque requires no acceptance.4. Drawer of cheque is not discharged by failure of the holder to present it in due time.5. Notice of dishonour is not necessary in the case of V cheques.6. Cheques need not be protested for clishonour.7. Cheques can be crossed .8. In certain circumstances statutory protection is available to the draweebanker in connection with payment of cheques.9. Under certain circumstances, statutory protect ion is available to the collecting banker against liability for conversion of crossed cheques.

1. Anyone can be a draweein the case of a bill of exchange.2. Bill of exchange is en titled to three days of grace.3. Bill of exchange requires acceptance.4 If bill of exchange is not presented for payment in due time, drawer is dis charged.5. Notice of dishonour is necessary in the case of bills of exchange.6. It is advisable that bills of exchange be protested for dishonour.7. Bills of exchange cannot be crossed.8. No such protection is available to the drawee or acceptor of a bill of exchange.9. No such protection is available in the case of bills of exchange.