Negotiable Instruments Final

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Promissory Note ,Bill OfExchange and Cheque

PROMISSORY NOTE: definition by rules:

According to negotiable instruments Act 1881, section 4.A promissory note is an

instrument in writing (not being a bank note or a currency note) containing an

unconditional undertaking, signed by the maker, to pay a certain sum of money only or to

the order of a certain person, or to the bearer of the instrument.

A promissory note is drawn and signed by the debtor, who promises to pay the creditor a

certain sum of money. The specimen of promissory note is given below:

Dhaka 11003

Tk 8,000 5th April, 2007

Three months after date i promise to pay Mr. Harun the sum of Takas eight

thousand, for value received.

Stamp

To Mr. Harun Sd. Hasanur Rahman

A promissory note may be drawn by more than one person also who may undertake to pay

the amount both in their individual capacities as well as jointly. The specimen of a

promissory note with joint and several liabilities is given below:

Tk .

Dhaka..20

On demand we jointly and severally promise to payto. .

....or order the

sum of Takas ............... together with interest

on such sum from this date at the rate of percent per annum

with . rests, for value received.

Stamp

(Signaturee across the

stamp)


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Stamp

Md. Hasanur Rahman

Addresses..

Essential requirements-The essential characteristics of a promissory note may be summarized as

follows:

(1). It must be in writing

(2) A promissory note contains a promise to pay.

(3) There are two parties involved in a promissory note (i) the maker who signs

the note and (ii) the payee.

(4) It contains an unconditional promise by the maker to pay.

(5) A promissory note cannot be made payable to the maker.(6) A promissory note needs no acceptance.

(7) A notice of dishonor for non payment is not necessary in case of promissory

note.

(8) In case of promissory note, the parties in immediately relation are the maker

and the payee.

(9) A promissory note is not drawn in sets.

(10) In case of promissory note, the liability of the maker is primary and

absolute.

BILL OF EXCHANGE: Definition by rules

According to negotiable instruments act 1881 section S, A bill of exchange is 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 the order of, a certain person

or to the bearer of the instrument.

That is, a bill of exchange contains an order from the creditor to the debtor to pay a

specified amount to a person mentioned therein. The maker of a bill is called the

drawer, the person who is directed to pay is called the drawee; the person who is

entitled to receive the payment is called the payee; sometimes the drawer himself is

the payee. The specimen of a bill of exchange is given below:

Tk. 10, 000 Dhaka, 3rd March 2007

Two months after date pay to Mr. Mamun or order the sum of taka Ten thousand only,

for value received.

To

Mr. Habibur Rashid

201/A, DhanmondiDhaka

2AcceptedSd/- Habibur Rashid


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Essential Characteristics

The essential characteristics of a bill of exchange may be summarized as

follows:

(1) It must be in writing

(2) A bill of exchange contains an order to pay.

(3) There are usually three parties to the bill (i) the drawer (ii) drawee and (iii)

payee.

(4) It contains on unconditional order to the drawee to pay.

(5) A bill of exchange can be made payable to the drawer. In this case the billwill have only two parties.

(6) Acceptance is a must for a bill of exchange.

(7) In case of dishonor of bill, a notice must be given to all persons liable to pay.

(8) In case of bill of exchange, the parties in immediate relation are the drawer

and the acceptor.

(9) A bill of exchange is drawn in sets.

(10) In case of bill of exchange, the liability of the drawer of the bill is

secondary. He is liable to pay only when the acceptor of the bill refuses to pay

.CHEQUE: Definition by rules

According to the negotiable instruments act 1881, section 6, a cheque is a bill of

exchange drawn on a specified banker and not expressed to be payable otherwise than

on demand. It is an important document for any transaction in the business world.

Thus, a cheque is a bill of exchange with two distinctive features namely-

1) It is always drawn on a bank

2) It is always payable on demand

Features of a Cheque

1) A cheque is printed paper

2) On the printed paper it specifies the bank and branch address

3) It must be in writing

4) A cheque is always drawn on a banker

5) A cheque can only be drawn payable on demand

6) It must have a date

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Dutch-Bangla Bank Limited Current Account No.

Uttara Branch, Dhaka

Date 06/06/2007

Tk. 25,000/=

7) Cheque no is also exist

8) It must contain an order to pay

9) It includes an account no of owner of the account holder

10) The order to pay must be unconditional

11) The sun payable must be certain

12) A cheque must contain an order to pay money only

Specimen of a Cheque

Pay to Abdullah Al-Mahmud or bearer

The sum of TakaTwenty five thousand taka only

SB 3907513

A

DIFFERENCE BETWEEN BILL OF EXCHANGE AND PROMISSORY NOTEParticulars Bill of Exchange Promissory note

1. Definition A bill of exchange is 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 theorder of, a certain person

or to the bearer of the

instrument.

A promissory note is an

instrument in writing (not

being a bank note or a

currency note) containing an

unconditional undertaking,

signed by the maker, to pay

a certain sum of money onlyor to the order of a certain

person, or to the bearer of

the instrument.

2. Number of parties In a bill of exchange there

are three parties the

drawer, drawee and payee

In a promissory note there

are two parties the maker

of the note and the payee

3. Promise and order A bill of exchange is an

order for making the

payment

A promissory note contains

a promise to make the

payment

4. Acceptance Bill payable after sight

requires acceptance of thedrawee before it is

Promissory note does notrequire it

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presented for payment

5. Nature of liability The liability of drawer of a

bill of exchange is

secondary and conditional

The liability of the maker

of a promissory note is

primary and absolute

6. Makers position The maker or drawer of anaccepted bill stands in

immediate relation with the

acceptor and not the payee

The maker of promissorynote stands in immediate

relation with the payee

7. Payable to bearer A bill of exchange can be

drawn payable to bearer

A promissory note cannot

be drawn payable to bearer

8. Formalities in case of

dishonor

Notice of dishonor must be

given by the holder to all

prior parties who are liable

to pay

No notice is necessary to

the maker

DIFFERENCE BETWEEN A BILL OF EXCHANGE AND A CHEQUE:Although a cheque, being a class of a bill of exchange must satisfy almost all the

essentials of a bill e.g. signed by the drawer, containing an unconditional order, to pay a

certain sum of money, to the order of a person or bearer, etc. Yet, there are few points

of difference between the two namely-

1. A bill of exchange is usually drawn on some person or firm while a cheque is always

drawn on a bank.

2. A cheque is generally used for inland payments but a bill of exchange may be used

both for inland and foreign payments.3. Drawer cannot hold the drawee liable on a bill of exchange unless the latter has

accepted it. It is essential that a bill of exchange must be accepted before its

payment can be claimed. A cheque does not require any such acceptance.

4. A cheque is always payable on demand. A bill of exchange may be payable on

demand or on the expiry of a fixed period.

5. A cheque is payable immediately on demand without any days of grace but in the

case of a time bill of exchange , three days of grace are allowed from the due

date.

6. A bill of exchange must be properly stamped. A cheque does not require any stamp.

7. A bill of exchange must be duly presented for payments or else and the drawer will

be completely discharged. In the case of a cheque, drawer is discharged from

liability only when the delay in presentment has caused him some loss on account of

failure of the bank.

8. Unlike cheque, a bill of exchange cannot be crossed.

9. A cheque drawn payable to bearer on demand shall be valid but a bill payable on

demand can never be drawn payable to bearer.

10. Unlike bills of exchange, cheques usually are not intended for circulation but for

immediate payment.

11. Unlike cheques, the payment of a bill cannot be cancelled by the drawer.

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Negotiable Instruments Final