Discuss the distingtion among Promissory Notes, Bill of Exchange, and Cheques.

Promissory Notes, Bills of Exchange, and Cheques are all negotiable instruments commonly used in commercial transactions to facilitate payments. While they share some similarities, each instrument has distinct characteristics and serves different purposes. Here's a discussion on the distinction among Promissory Notes, Bills of Exchange, and Cheques:

1. Promissory Notes:

• 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) at a specified future date or on-demand.

• Parties Involved: There are two parties involved in a Promissory Note:

  • Maker: The person who promises to pay the specified amount.
  • Payee: The person to whom the payment is to be made.

• Unconditional Promise: A Promissory Note contains an unconditional promise to pay. It is a primary obligation, and the payee can enforce payment against the maker without any additional conditions.

• Payment Time: The payment of a Promissory Note can be made on a specified future date (time Promissory Note) or upon demand (demand Promissory Note).

• Stamp Duty: Promissory Notes are required to be stamped as per the Stamp Act to be legally valid.

2. Bills of Exchange:

• Definition: A Bill of Exchange is a written instrument in which one party (the drawer) orders another party (the drawee) to pay a certain sum of money to a third party (the payee) either immediately or at a specified future date.

• Parties Involved: There are three parties involved in a Bill of Exchange:

  • Drawer: The person who orders the payment.
  • Drawee: The person directed to make the payment.
  • Payee: The person to whom the payment is to be made.

• Conditional Order: A Bill of Exchange contains an unconditional order to pay. It is a secondary obligation, and the payee can enforce payment against the drawer and any endorsers in case of default by the drawee.

• Acceptance: In a Bill of Exchange, the drawee must accept the instrument by signing it, indicating their agreement to make the payment as directed. Once accepted, the Bill becomes a binding obligation on the drawee.

• Negotiability: Bills of Exchange are freely negotiable, meaning they can be transferred by endorsement and delivery. Endorsement signifies the transfer of rights to the instrument from one party to another.

3. Cheques:

• Definition: A Cheque is a written instrument drawn on a bank, directing the bank to pay a specified sum of money to the bearer or to a named payee.

• Parties Involved: There are three parties involved in a Cheque:

  • Drawer: The account holder who issues the Cheque.
  • Drawee: The bank on which the Cheque is drawn.
  • Payee: The person to whom the payment is to be made.

• Payment Order: A Cheque is an unconditional order to pay. It is an instruction from the drawer to the bank to pay the specified amount to the payee or bearer.

• Banking Instrument: Cheques are primarily used for making payments and transferring funds between bank accounts. They provide a convenient and secure method of conducting financial transactions.

• Crossing: Cheques can be crossed to specify the mode of payment and to prevent fraudulent encashment. Crossing involves drawing two parallel lines across the face of the Cheque.

In summary, while Promissory Notes, Bills of Exchange, and Cheques are all negotiable instruments used for making payments, each instrument has distinct characteristics regarding parties involved, payment terms, legal implications, and usage. Understanding these differences is essential for businesses and individuals engaging in commercial transactions to ensure compliance with legal requirements and financial obligations.