Promissory Notes, Bills of Exchange, and Checks: A Comparative Overview
The Promissory Note
A promissory note is a written, unconditional promise by one party (the maker or subscriber) to pay a specific sum of money to another party (the payee or holder) at a future date or on demand. It’s a key instrument in credit transactions.
Content Requirements
- Statement to be paid: The note must clearly state the amount to be paid. Without this, it may not be legally recognized as a credit instrument.
- Unconditional promise: The promise to pay must be absolute, distinguishing it from other credit instruments like bills of exchange and checks.
- Payee’s name: The note must identify the person or entity to whom payment is due. This can be a specific person, the bearer, or the order of a payee.
- Time and place of payment: The due date and location for payment should be specified. If not, the note is considered payable on demand at the maker’s place of business.
- Date and place of signing: The date and place where the note is signed are crucial for determining the subscriber’s legal capacity and the timeframe for presenting acceptance or payment.
- Signature: The maker’s signature is essential. It signifies their agreement to the terms and creates the legally binding obligation.
Differences and Similarities Between Notes and Bills of Exchange
Promissory Note
- A promise to pay
- Involves a subscriber (maker) and a holder (payee)
- Allows for agreed-upon interest payments
- Generally doesn’t require protest for non-payment, except in specific cases
Bill of Exchange
- An unconditional order to pay
- Involves a drawer, drawee, and payee
- Interest payments are typically not allowed
- Protest is required for non-acceptance or non-payment
Checks
A check is a type of bill of exchange where the drawee is always a bank. It’s a written order instructing the bank to pay a specific sum of money to a third party or the bearer.
Key Players
- Drawer: The person authorized to write the check.
- Drawee: The bank.
- Payee: The person or entity to whom the check is payable.
Content Requirements
- Designation as a check: The document must clearly state that it is a check.
- Place and date of issue: The check should include the location and date it was written.
- Unconditional order: The order to pay must be absolute.
- Drawee’s name: The name of the bank must be included.
- Place of payment: The location for payment should be specified; otherwise, it’s the drawee’s place of business.
- Drawer’s signature: The drawer’s signature authorizes the payment.
Additional Check Details
- Types: Checks can be nominative (payable to a specific person) or bearer (payable to whoever holds the check).
- Negotiability: Nominative checks can be transferred by endorsement, while bearer checks are transferred by delivery.
- Payment on demand: Checks are always payable on demand, regardless of the date written.
Time of Presentation for Payment
While protest is not required, the bank must pay if there are sufficient funds. Deadlines for presenting a check for payment vary depending on the location of issue and payment.
- 15 calendar days: Payable in the same place of issue.
- One month: Issued and payable within the same country.
- Three months: Issued abroad and payable in the country, or issued in the country and payable abroad.