Page 181 - DMGT102_MERCANTILE_LAWS_I

Unit 14: Law of Negotiable Instruments

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

Promissory Note Bill of Exchange
1. There are only two parties – the maker There are three parties – the drawer, the drawee and
(debtor) and the payee (creditor). 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 drawee to
the maker to pay the payee. 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 pay-
ment.
4. The liability of the maker or drawer is pri- The liability of the drawer is secondary and condi-
mary and absolute. tional 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 immediate
relation with the payee. relation with the acceptor or drawee.

14.4 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 defi nes 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.

14.4.1 Specimen of a Cheque

Every bank has its own printed cheque forms which are supplied to the account holders at the
time of opening the account as well as subsequently whenever needed. These forms are printed
on special security paper which is sensitive to chemicals and makes any chemical alterations
noticeable. Although, legally, a customer may withdraw his money even by writing his directions
to the banker on a plain paper but in practice bankers honour only those orders which are issued
on the printed forms of cheques.

LOVELY PROFESSIONAL UNIVERSITY 175