(Read previous post on Negotiable Instruments first)
Note - In case of cheque, drawee is always a banker or bank, whereas in case of BOE, drawee could be bank or any person
Promissory Notes -
It is a negotiable instrument in writing with an unconditional undertaking/promise, signed by a maker, to pay a certain amount of money to the order, or bearer of the instrument.
What we get from the definition?
- It should be in writing
- It is an unconditional undertaking / promise to pay
- It should be signed by the maker / issuer. Remember it involves only 2 parties - the maker and the payee.
- Payable to both bearer and order of the instrument
Bills of Exchange -
It is a negotiable instrument in writing with an unconditional order, signed by a maker, ordering a certain person/institution, to pay a certain amount of money to the order, or bearer of the instrument.
What we get from the definition?
- It should be in writing
- It is an unconditional order to pay (not an undertaking) [refer previous post for the difference]
- It should be signed by the maker / issuer. Remember it involves 3 parties -
the maker/drawer/issuer,
the drawee (may be a bank, or institution, or other person, whom the drawer is directing for payment to the payee) and
the payee (whom the drawer is paying) - Payable to both bearer and order of the instrument
Cheques -
It is a special type of bill of exchange, which is drawn on a specified banker (i.e., drawee is always banker), and not expressed to be payable otherwise than on demand.
What we get from the definition?
- It is a special type of Bill of Exchange, where drawee is fixed (i.e., the banker)
- As it a Bill of exchange, it is therefore an unconditional order to pay
- It should be signed by the maker / issuer (i.e., the account holder of a bank).
Remember it involves 3 parties -
the drawer (e.g. account holder),
the drawee (always banker), and
the payee (whom the drawer is paying) - It should be paid on demand (i.e., whenever the cheque is presented to the bank)
- Payable to both bearer and order of the instrument
Example - The drawer is
the individual who issues the cheque, instructing the bank
(drawee) to pay the recipient (payee)
Note - In case of cheque, drawee is always a banker or bank, whereas in case of BOE, drawee could be bank or any person
Now try to clear the differences between these three -
Promissory Note |
Bill of Exchange |
Cheque |
|
Nature
|
Unconditional undertaking,
or promise to pay
|
Unconditional order
to pay
|
Unconditional order
to pay
|
Parties
|
2 parties – maker, payee
|
3 parties – drawer, drawee, payee
|
3 parties – drawer, bank, payee
|
Liability
|
Liability of maker is primary
|
Liability of Drawer (maker) is secondary, drawee (e.g. bank) is primary
|
Liability of drawer
(maker) is primary
|
Special cases
|
Maker and payee must be two different persons
|
Both drawer
and payee may be the same person
|
Both drawer
and payee may be the same person
for Self-cheque
|
Acceptance
|
No need of acceptance of maker, while presenting
for payment
|
Can be presented for payment only when it is accepted
by drawee (acceptance is must,
before drawee can be made liable
upon it)
|
Does not
require any acceptance
|
Conditions
|
A maker cannot
put any conditions on it
|
Drawee can
put conditions only if he accepts the bill
|
Can be drawn payable to bearer or on demand
|
Legality cases
|
If doesn't contain payee’s
name, but state to be payable to bearer, is illegal.
|
When made payable
to bearer, it is not considered as illegal (entitled to 3 days of grace unless it is payable
on demand)
|
Payable immediately
on demand without any days of grace
|
Dishonor
|
If dishonored, no
notice required
|
If dishonored, a notice
of dishonor is required to be given by the holder (payee) to the maker
of the bill (drawer)
|
Notice of
dishonor is not necessary.
Want of assets in the hands of banker is sufficient notice
|
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