Definition:
A promissory note is a written instrument in which one party (the maker) promises to pay a certain sum of money to another party (the payee) or to the bearer of the instrument.
Key Features:
- Must be in writing
- Unconditional promise to pay
- Signed by the maker
- A certain sum of money
- Payable on demand or at a fixed future time
Illustration:
“I promise to pay B or order ₹5,000” – This is a valid promissory note.
Bills of Exchange
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 to, or to the order of, a certain person or to the bearer.
Parties Involved:
- Drawer: Person who makes the bill
- Drawee: Person who is directed to pay
- Payee: Person to whom the amount is to be paid
Key Features:
- Must be in writing
- Contains an order to pay
- Unconditional
- Signed by the drawer
- Specified amount of money
- Payable on demand or after a certain time
Example:
“A directs B to pay ₹10,000 to C on a specified date.” This is a bill of exchange.
Cheques
Definition:
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
Key Features:
- Drawn on a banker only
- Payable on demand
- Contains an unconditional order to pay
- Must be signed by the drawer
- Amount must be specified
Types of Cheques:
- Bearer Cheque: Payable to the person holding it
- Order Cheque: Payable to a specific person
- Crossed Cheque: Can be deposited only in a bank account
- Post-dated Cheque: Dated for a future day
- Stale Cheque: Presented after 3 months from its date
Legal Implications:
- If a cheque is dishonoured due to insufficient funds, the drawer can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881.
Mind Map (Textual Format):
Negotiable Instruments
→ Promissory Note
↳ Maker promises to pay
↳ In writing, signed, certain sum, unconditional
↳ Payee receives the amount
→ Bill of Exchange
↳ Drawer orders Drawee to pay Payee
↳ In writing, unconditional order
↳ Signed by Drawer
↳ Time-specific payment
→ Cheque
↳ Special type of Bill of Exchange
↳ Drawn only on a banker
↳ Payable on demand
↳ Types: Bearer, Order, Crossed, Post-dated
