1. PROMISSORY NOTE (S.4) A promissory note is- (1) an instrument in writing, (2) not being a banknote or a currency note, (3) containing an unconditional undertaking,. (4) signed by the maker, (5) to pay a certain sum of money only (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument :

2. ILLUSTRATIONS Promissory Notes 1. “I promise to pay B or order Rs. 500.” 2. “I acknowledge myself to be indebted to B in Rs.1,000, to be paid on demand, for value received. Not Promissory Notes 1. Mr. B, I.O.U. Rs. 1,000. 2. “I promise to pay B Rs, 500, and all other sums which shall be due to him.” 3. “I promise to pay B Rs. 500, first deducting thereout any money which he may owe me,” 4. “I promise to pay B Rs. 500, seven days after my marriage with .“ 5. “I promise to pay B Rs. 500 on D’s death provided D leaves me enough to pay that sum’

3. ESSENTIALS OF A VALID PROMISSORY NOTE 1. It must be in writing. 2. It must contain an undertaking to pay. 3. The undertaking to pay must be unconditional. 4. It must be signed by the maker. 5. The maker of the note must be certain. 6. The sum payable must be certain. 7. The promise should be to pay money, and money only. 8. The payee must be certain.

4. SPECIMENS OF PROMISSORY NOTES Bombay, 10 th January, 1998 Rs. 5,000/- ON DEMAND I Promiseto pay WILLIM JONES THE SUCM OF FIVE THOUSAND RUPEES. Sd/- Henery Brown Bombay, 10 th January, 1998 ON DEMAND I Promise to pay MOHAN LALVANI the sum of Rs. 5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED.. Sd/- SATISH GANDHI Bombay, 10 th January, 1998 ON DEMAND I promise to pay JOSEPH DE SOUZA or order the sum of five thousand rupees with interest on the said sum at 10% (ten percent) per annum till payment. Sd/- PAUL FERNANDES A promissory note cannot be made payable to the maker himself. Thus, a note in the form, I promise to pay myself is not a promissory note; but such a note becomes valid if its is endorsed by the maker, because then in becomes payable to bearer, if endorsed in blank, or to the encorsee or to, if specially endorsed.

5. BILLS OF EXCHANGE (S. 5 & Ss. 132-133) A “Bill of Exchange” is – (1) an instrument in writing, (2) containing an unconditional order, (3) signed by the maker, (4) directing a certain person, (5) to pay a certain sum of money only-. (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument. The maker of a Bill of Exchange is called the “drawer,” and the person thereby directed to pay’ is called “the drawee”. (S. 7) A bill of exchange is also sometimes called a draft. When it is drawn by a bank on its own branch, it is called a bank draft.

6. BILL OF EXCHANGE – ESSENTIAL REQUISITIES The following are the eight essential requirements of valid Bill of Exchange : 1. It must be in writing. 2. It must contain an order to pay. 3. The order contained in the bill should be unconditional. 4. It must be signed by the drawer,. 5. The drawee must be certain.a 6. The payee must be certain. 7. The sum payable must be certain. 8. It must contain an order to pay money, and money

7. Bombay, 10 th January, 1998 Rs. 5000/- Sixty Days after date, pay to William Smith, the sum of five thousand rupees only for value received. To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay – 400 023. SPECIMENS OF BILL OF EXCHANGE Bombay, 20 th January, 1998 Rs. 5000/- Sixty Days after date pay to John Smith, or order, the sum of Rupees Five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay – 400 023. SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE Bombay, 20 th January, 1988 Rs. 5000/- ON Demand Pay to William Smith, the sum of Rupees five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, m. Gandhi Road, Bombay – 400 023. Accepted : S/d- Paul Jacobson Bombay, 20 th January, 1988 Rs. 5000/- On Demand pay to William Smith the sum of five thousand rupees only for value received To Paul Jacobson, Sd/- 40, m. Gandhi Road, HENRY BROWN Bombay – 400 023. Accepted : S/d- Paul Jacobson

11. PAYEE (Ss. 7) The person named in the instrument, to whom or to whose order the money is, by the instrument directed to be paid, is called the “payee”. PAYMENT IN DUE COURSE (S.. 10) “ Payment in due course” means payment— (i) in accordance with the apparent tenor of instrument. (ii) in good faith. and (iii) without negligence, (iv) to any person in possession thereof, (v) under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

12. HOLDER (Ss. 8) “ Holder” defined (S. 8) The “holder” of a promissory note, bill of exchange. or cheque means any person entitled his own name, to the possession thereof, and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time loss or destruction. Holder in due course (S. 9) “ Holder in due course” means any person who for consideration, became the possessor of a promissory note, bill of exchange, or cheque, if payable to bearer, or the payee or endorsee thereof, if payble to order, before the amount mentioned if it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

13. REQUISITES FOR HOLDER IN DUE COURSE 1. He must show that he has paid valuable consideration. Any consideration which would support an ordinary contract would be sufficient to constitute the transferee a holder in due course, 2 .But the donee of a pro-note, who takes it by way of a gift, is not a holder in due course. 2. He must show that, on payment of such consideration, he became— (i) the possessor of the negotiable instrument, if the instrument is pay the bearer thereof; or (ii) the payee or endorsee thereof, if the instrument is payable to the m,&-1 3. He must prove that he became the possessor thereof before the amount due under the instrument became actually payable. 4. He must also show that he became the possessor thereof without having sufficient cause to believe that any defect existed in the title of the transferee from whom he derived his title.

14. NEGOTIABLE INSTRUMENTS A ‘negotiable instrument’ means a promissory note,’ bill of exchange or cheque payable either to order or to bearer : S. 13(1). Explanation 1.-A promissory note, bill of exchange or cheque is payable to order—which is expressed to be so payable, or which is expressed - to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation 11,-A promissory note, bill of exchange or cheque is payable to bearer—which is expressed to be so payable, or on which the only or last endorsement is an endorement in blank. Explanation III. Where a promissory note, bill of exchange or cheque (either originally, or by endorsement), is expressed to be payable to the order of a specified person, and not to him or the order, it is nevertheless payable to. him or his order at his option : S. 13. A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to àne of two, ‘or one or some of several payees.

15. ESSENTIAL FEATURES OF NEGOTIABILITY 1. The property in a , negotiable instrument, i.e., the complete right of ownership, and not merely the possession, that is, the right to retain it as against anyone except the true owner, passes, in the case of bearer instruments, by mere delivery, and in case of order instruments, by indôrsement and delivery.. 2. The holder in due course is not in any way, affected by the defect of the title of his transferor or of any prior party. 3. The holder in due course can upon a negotiable instrument in his own name. 4. The holder in due course is not affected by certain defences which might be available against previous holders, e.g., fraud, to which he is not a party. NEGOTIATION When a promissory note, bill or cheque is transferred to any person, so as to constitute him the holder of it, the instrument is said to be negotiated: (S. 14).

16. DIFFERENCE BETWEEN BILL OF EXCHANGE & PROMISSORY NOTE 1. There are only two parties: promissorand promisee. 2. It contains a promise to pay. 3. The liability of the maker is’ primary and absolute. 4. Presentment for payment and notice of dishonour are not required. 5. A promissory note cannot be made conditional. 6. Drawer of a promissory note stands in immediate relation with the payee. 7. Promissory notes cannot be drawn is sets. 8. A promissory note cannot be made payable to bearer. 9 Promissory notes need not be protested for dishonour. 1. There are there parties: drawer, drawee and payee. -2. It contains an order to pay. 3. The liability of the drawer is secondary and conditional. 4. Presentment for payment and notice of dishonour are required. 5. A bill of exchange can’ be accepted conditionally. 6. Drawer ‘of a bill of exchange stands in immediate’ relation with the acceptor. ‘ 7. Bills can be drawn in sets. 8. A bilief exchange can be made payable to bearer, provided it is not made payable on demand. 9. Foreign bills must be protested for, dishonour if so required by the law of the country of their’. origin. PROMISSORY NOTE BILL OF EXCHANGE

17. POINTS OF DIFFERENCE BETWEEN CHEQUE BILL OF EXCHANGE 1. Anyone can be a drawee in the case of a bill of exchange. 2. Bill of exchange is en titled to three days of grace. 3. Bill of exchange requires acceptance. 4 If bill of exchange is not presented for payment in due time, drawer is dis charged. 5. Notice of dishonour is necessary in the case of bills of exchange. 6. It is advisable that bills of exchange be protested for dishonour. 7. Bills of exchange cannot be crossed. 8. No such protection is available to the drawee or acceptor of a bill of exchange. 9. No such protection is available in the case of bills of exchange. 1. The dràwee of a cheque is always a bank. 2. Cheque is payable on demand, without any days of grace. 3. Cheque requires no acceptance. 4. Drawer of cheque is not discharged by failure of the holder to present it in due time. 5. Notice of dishonour is not necessary in the case of V cheques. 6. Cheques need not be protested for clishonour. 7. Cheques can be crossed . 8. In certain circumstances statutory protection is available to the draweebanker in connection with payment of cheques. 9. Under certain circumstances, statutory protect ion is available to the collecting banker against liability for conversion of crossed cheques. BILL OF EXCHANGE CHEQUE