Introduction
Promissory notes, bills of exchange, and cheques are three key negotiable instruments governed by the Negotiable Instruments Act, 1881. These instruments play a vital role in facilitating credit and ensuring secure and efficient financial transactions. While each has unique features, they also share several common characteristics.
Main Body
Definitions
- Promissory Note (Section 4): A written promise made by one party to pay a certain sum of money to another party.
- Bill of Exchange (Section 5): A written order from one person to another to pay a specified amount to a third party.
- Cheque (Section 6): A special type of bill of exchange drawn on a banker and payable on demand.
Common Features
1. Written Instruments
All three must be in writing. Oral promises or instructions do not constitute valid negotiable instruments.
2. Unconditional
The promise (in a promissory note) or order (in a bill or cheque) must be unconditional. There should be no stipulations attached to payment.
3. Definite Sum of Money
They must involve a fixed and certain amount of money, which can be expressed in figures or words.
4. Parties Involved
- Promissory Note: Maker and Payee
- Bill of Exchange: Drawer, Drawee, and Payee
- Cheque: Drawer, Drawee (Bank), and Payee
5. Signature
Each instrument must be signed by the maker (PN), drawer (BoE and cheque) to authenticate the document.
6. Transferability
They can be transferred by endorsement and delivery or by mere delivery if payable to bearer. This quality makes them negotiable instruments.
7. Legal Presumptions
The Act provides presumptions in favor of these instruments, such as:
- Presumption of consideration
- Presumption of date and time of acceptance
- Presumption of proper endorsement
8. Acceptance and Payment
Though acceptance is mandatory for a bill of exchange, it is not required for promissory notes and cheques. All instruments are meant to be honored upon maturity or demand.
9. Can Be Dishonored
Failure to honor any of these instruments leads to legal liability. The holder can initiate legal proceedings against the defaulting party.
Examples
- Promissory Note: “I promise to pay B or order Rs. 5,000 on demand.”
- Bill of Exchange: “Pay to B or order Rs. 5,000 after 30 days.”
- Cheque: “Pay B or bearer Rs. 5,000.”
Key Difference Summary
| Aspect | Promissory Note | Bill of Exchange | Cheque |
|---|---|---|---|
| Parties | 2 | 3 | 3 |
| Bank Involvement | No | No | Yes |
| Acceptance Required | No | Yes | No |
Conclusion
Promissory notes, bills of exchange, and cheques are essential financial instruments that share several core features such as written form, negotiability, and definite payment terms. While they serve different commercial purposes, understanding their similarities helps in recognizing their legal significance and use in modern transactions.