Page 113 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes 6.3.3 Distinction between a Promissory Note and a Bill of Exchange

Promissory Note Bill of Exchange
1. There are only two parties – the maker (debtor) There are three parties – the drawer, the
and the payee (creditor). drawee and the payee although drawer and
payee may be the same person.
2. A note contains an unconditional promise by It contains an unconditional order to the
the maker to pay the payee. drawee to pay according to the drawer’s
directions.
3. No prior acceptance is needed. A bill payable ‘after sight’ must be accepted
by the drawee or his agent before it is
presented for payment.
4. The liability of the maker or drawer is primary The liability of the drawer is secondary
and absolute. and conditional upon non-payment by the
drawee.
5. No notice of dishonour need be given. Notice of dishonour must be given by the
holder to the drawer and the intermediate
endorsers to hold them liable thereon.
6. The maker of the note stands in immediate The maker or drawer does not stand in
relation with the payee. immediate relation with the acceptor or
drawee.

Task D draws a bill of exchange on A, payable to P. Who is liable to P (i) until
acceptance is made by A; (ii) if A does not accepts the bill of exchange; (iii) A
accepts the bill of exchange? [Hint: (i) and (ii) D is liable to P. (iii) A is liable
to P.]

6.4 Cheques

A cheque is the usual method of withdrawing money from a current account with a banker.
Savings bank accounts are also permitted to be operated by cheques provided certain minimum
balance is maintained. A cheque, in essence, is an order by the customer of the bank directing his

banker to pay on demand, the specified amount, to or to the order of the person named therein
or to the bearer. Sec.6 defines a cheque. The Amendment Act, 2002 has substituted new section

for Sec.6. It provides that a ‘cheque’ is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic from.
‘A cheque in the electronic form’ means a cheque which contains the exact mirror image of a
paper cheque, and is generated, written and signed in a secure system ensuring the minimum
safety standards with the use of digital signature and asymmetric crypto system.

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