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Week 13 Session 26-Bills of Exchange & Promissory Note

The document discusses bills of exchange and promissory notes. A bill of exchange is a written order by a maker directing a certain person to pay a sum of money to either a specific person, to the order of a person, or the bearer. It must be in writing, contain an unconditional order, have a definite sum, and have certain parties. A promissory note contains an unconditional written promise by the maker to pay a sum to a certain person, to the order of a person, or the bearer. It too must be in writing and contain certain essential characteristics such as a definite sum and certain parties. Examples of each are provided.

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Gaurav Naulakha
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33 views

Week 13 Session 26-Bills of Exchange & Promissory Note

The document discusses bills of exchange and promissory notes. A bill of exchange is a written order by a maker directing a certain person to pay a sum of money to either a specific person, to the order of a person, or the bearer. It must be in writing, contain an unconditional order, have a definite sum, and have certain parties. A promissory note contains an unconditional written promise by the maker to pay a sum to a certain person, to the order of a person, or the bearer. It too must be in writing and contain certain essential characteristics such as a definite sum and certain parties. Examples of each are provided.

Uploaded by

Gaurav Naulakha
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Week 13

Session 26-Bills of Exchange & Promissory Note


*Bills of Exchange: Section 4

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 only to-

1] A certain person or

2] The order of a certain person or

3] The bearer of the instrument

*Essential Characteristics of Bills of Exchange:

1] It must be in writing.

2] It must contain an express order to pay.

3] The order to pay must be definite and unconditional.

4] It must be signed by the drawer or the maker.

5] The sum contained in the order must be certain.

6] The order must be to pay money only.

7] The drawer, drawee and the payee must be certain.

8] It must be stamped.

*Parties to a bill of exchange:

1] Drawer:

The person who draws the bill i.e. the person who makes the bill is called as
a drawer.

His liability is secondary and conditional.


His liability is primary and conditional until the bill is accepted.

2] Drawee:

The person on whom the bill is drawn is called the drawee.

On the acceptance of the bill:

>He is called as acceptor

>He becomes liable for the payment of the bill

>His liability is primary and unconditional

3] Payee:

The person to whom money is to be paid and who is named in the bill is
called the payee.

*Specimen of a bill of exchange:

*Promissory Note-Section 4

*Meaning of promissory note:

A promissory is an instrument in writing

>containing an unconditional undertaking

>signed by the maker

>to pay a certain sum of money only to-

A certain person; or

The order of a certain person; or

The bearer of the instrument


*Essential characteristics of promissory note:

1] In writing-An oral promise to pay is not sufficient.

2] Express promise to pay-There must be an express promise to pay. Mere


acknowledgement of indebtedness is not sufficient.

For example- Mr. B I owe you Rs.1000. There is no promise to pay and
therefore such an acknowledgement of indebtedness doesn’t constitute a
promissory note.

3] Definite and unconditional promise- If a promise to pay is dependent


upon an event which is certain to happen, although the timing of its happening
is uncertain, the promise to pay is unconditional.

For example-

1) I promise to pay B Rs.500 seven days after my marriage with C. The


promise here is conditional since the promise is dependent upon the
marriage of the promisor with C which may or may not happen.

2) I promise to pay B Rs.500 on D’s death. The promise here is


unconditional since the promise is dependent upon the death of D which
is certain to happen but only its time of happening is uncertain.

4] Signed by Maker- A promissory note must be signed by the maker. The


signatures may be made on any part of the instrument.

5] Promise to pay a certain sum- The promise must to a pay a certain


(determined and ascertained) amount of money.

6] Promise to pay money only- A promissory note must contain a promise to


pay money and money only. No payment in kind is viable.

7] Payee must be certain-The name of the payee must be specified in the


promissory note, otherwise it will be invalid.

As per the provisions of the RBI Act, 1934, a promissory note cannot be made
as payable to the bearer.

*Parties to a promissory note:

1] Maker-The person who makes the promissory note is called the maker. His
liability is primary and unconditional.

2] Payee-The person to whom money is to be paid and who is named in the


promissory note is called the payee.
*Specimen of a promissory note:

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