Promissory Note, Bill of exchange & Cheque

1. NEGOTIABLE INSTRUMENTS
Presented by:
Nasir Butt
M Talha Malik
Mahira Nisar
Zoya Farooq
Zarnab Zulfiqar
Muntaha Muhammad

2. NEGOTIABLE INSTRUMENTS
• According to Sec 13 (1) of the negotiable instrument
act, a “negotiable instrument” means a promissory
note, bill of exchange or cheque payable either, to
order or to bearer.
• Conditions for an instrument to be considered a
negotiable instrument are:
i. It is in such a form which entitles the holder to sue
in his own name.
ii. It is transferable.

3. TYPES OF NEGOTIABLE INSTRUMENTS
There are three main types of negotiable instruments.
They are as follows:
• Promissory Note
• Bill of Exchange
• Cheque

4. NEGOTIABLE INSTRUMENTS
• The negotiable instrument act expressly recognizes
only three instruments viz., a promissory note, bill of
exchange and a cheque. It, however, does not exclude
any other instrument to be included there in provided
that such instrument satisfies the characteristics of
negotiability.
• The essentials of the instruments are similar to a great
extent.

5. PROMISSORY NOTE
• According to Sec 4 of the negotiable instrument act a
"promissory note" is in an instrument in writing (not
being a bank-note or a currency note) containing an
unconditional undertaking signed by the maker, to
pay on demand or at a fixed or determinable future
time] a certain sum of money only to, or to the order
of a certain person, or to the bearer of the instrument.

6. PARTIES TO A PROMISSORY NOTE
• Maker:
Maker is the person who makes and signs the
promissory note. He agrees to pay a certain amount on
the date of maturity.
• Payee:
The payee is the person to whom the amount due on
promissory note is payable.

7. ESSENTIALS OF A PROMISSORY NOTE
(i) Written:
Promissory note must be in written form. A verbal
promise to pay does not become a promissory note.
(ii) It must contain promise to pay:
There must be a promise or an undertaking to pay. A
mere acknowledgment of debt is not a promissory
note.
(iii) Unconditional promise:
It must contain an unconditional promise to pay. The
promise to pay must not depend upon the happening
of some uncertain event or condition.
(iv) Signature of maker:
The maker must sign the promissory note.

8. ESSENTIALS OF A PROMISSORY NOTE
(v) Maker must be a certain person:
The promissory note must indicate who is the person
taking responsibility to pay the amount.
(vi) The payee must be certain:
The payee of promissory note must also a certain person.
(vii) The sum payable must also be certain:
The sum payable must also be certain and definite.
(viii) The sum payable must be in Pakistani currency:
The sum of money payable must be in Pakistani currency
a promissory note containing a promise to pay a certain
amount in foreign currency is not a valid promissory
note.

9. SCENARIO – PROMISSORY NOTE
Waqar Hussain purchased goods from Talha Malik.
Instead of paying him cash or cheque he gives him a
promissory note in which he writes “Five days after
date, I promise to pay “Talha Malik” or order Rs.5,000
for value receipt.
Maker:
He is also a debtor, he is the person who makes the
note and signs it. In this case it is “Waqar Hussain.”
Payee:
He is the creditor. He is the person to whom payment is
to be made. In this case it is “Talha Malik.”

10. SCENARIO – PROMISSORY NOTE

11. BILL OF EXCHANGE
• According to Sec. 5, a "bill of exchange" is an
instrument in writing containing an unconditional
order, signed by the maker, directing a certain person
to pay on demand or at a fixed or determinable future
time] a certain sum of money only to, or to the order
of, a certain person or to the bearer of the instrument.

12. PARTIES TO A BILL OF EXCHANGE
• Maker/Drawer:
The maker of a bill of exchange is called the drawer.
• Drawee:
The person directed to pay the money by the drawer is
called the drawee.
• Payee:
The person named in the instrument, to whom or to
whose order the money is directed to be paid.

13. ESSENTIALS OF A BILL OF EXCHANGE
(i) Written:
The bill of exchange must be in writing. It may be
written in any language.
(ii) Unconditional order:
The order contained in the bill of exchange must be
unconditional.
(iii) Signed by the drawer:
Bill of exchange must be signed by the drawer.
(iv) The drawee must be a certain person:
The drawee of a bill of exchange must be a certain
person. His name should be mentioned in it.

14. ESSENTIALS OF A BILL OF EXCHANGE
(v) The payee must be certain:
The payee of the bill also be a certain person.
(vi) The sum payable must be certain:
The sum payable must be certain and definite.
(vii) Pakistani currency:
The sum payable must be in Pakistani currency.
(viii) Other legal formalities:
(i) It should be dated.
(ii) Name of place where it is drawn.
(iii) It should be attested.
(iv) It should be properly stamped.

15. DISTINCTION BETWEEN PROMISSORY
NOTE AND A BILL OF EXCHANGE
I. Number of parties:
In promissory note there are two parties.
In a bill of exchange there are three parties.
II. Promise and order:
In an promissory note there is a promise to pay.
In an bill of exchange there is an order to pay.
III. Nature of liability:
Liability of the maker of promissory note is primary.
Liability of the maker of a bill of exchange is secondary
in nature.

16. DISTINCTION BETWEEN PROMISSORY
NOTE AND A BILL OF EXCHANGE
IV. Position of make:
The maker of a promissory note stands in an immediate
relation with the payee.
In bill of exchange, the drawn of bill stands in an
immediate relation with the drawee and the drawee
with payee.
V. As to liability of drawer:
The maker of a promissory note is a debtor.
The drawer of bill of exchange is the creditor.
VI. Payable to bearer:
A promissory note can not be drawn payable to bearer.
A bill of exchange can be drawn payable to bearer.

17. DISTINCTION BETWEEN PROMISSORY
NOTE AND A BILL OF EXCHANGE
VII. As to acceptance:
A promissory note needs no acceptance.
A bill of exchange needs acceptance by the drawee.
VIII. Payable to maker:
A promissory note cannot made payable to maker
himself.
A bill of exchange can be make payable to the maker
himself.

18. DISTINCTION BETWEEN PROMISSORY
NOTE AND A BILL OF EXCHANGE
IX. As to notice of dishonor:
In case of dishonor of promissory note there is no need
to give a notice of dishonor to the maker.
In case of dishonor of a bill of exchange there is a need
to give notice to all the parties of bill.
X. As to protest:
A promissory note need not to be protested.
A foreign bill of exchange must be protested for
dishonor.

19. SCENARIO – BILL OF EXCHANGE
Pak Elektron Limited is a manufacturer of home
appliances, and Ibrahim Electronics is a retailer which
deals in the sale of these appliances. The retailer has
been in a business relationship with PEL for a long time
but currently it does not have enough cash to buy new
stock of refrigerators. Pak Elektron Limited has spare
refrigerators in its finished goods inventory which it
intends to sell. Therefore, it agrees to sell these
refrigerators on 30-day credit to Ibrahim Electronics
considering the past repute of the retailer.

20. SCENARIO – BILL OF EXCHANGE
A bill of exchange amounting Rs 900,000 has been
drawn by PEL on Ibrahim Electronics which is the
drawee in this case. Payee in this case is Pak Elektron
Limited itself. The bill of exchange has been drawn on
22nd April, 2018 and will be due for payment after one
month. After acceptance of bill by Ibrahim Electronics, it
will be given to Pak Elektron Limited. On 22nd May,
2018 Pak Elektron Limited will be provided the sum
after presentment of bill to Ibrahim Electronics.

21. SCENARIO – BILL OF EXCHANGE
Pak Elektron Limited can also get cash immediately by
selling the bill of exchange to a bank which would give
face value of the bill to PEL, and would get the money
from Ibrahim Electronics instead of PEL on the date of
maturity.

22. CHEQUE
• A "cheque" is a bill of exchange drawn on a specified
banker and not expressed payable otherwise than on
demand.

23. PARTIES TO A CHEQUE
• Maker/Drawer:
The maker of a cheque is called the drawer.
• Drawee:
The person directed to pay the money by the drawer is
called the drawee. Cheque is always drawn on a
specified bank.
• Payee:
The person to whom the money is directed to be paid.

24. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
I. Drawn:
Cheque is drawn on a banker.
Bill of exchange may be drawn on any party or
individual.
II. Parties:
Cheque has three parties – the drawer, the drawee, and
payee.
Bill of exchange has three parties – the drawer, the
drawee, and the payee.

25. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
III. Drawn in Sets:
Cheque is seldom drawn in sets.
Foreign bills are drawn in sets.
IV. Acceptance:
Cheque does not require acceptance by the drawee.
Bill of exchange must be accepted by the drawee
before he can be made liable to pay the bill.

26. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
V. Grace days:
In case of cheque, days of grace are not allowed to a
banker.
In bill of exchange, three days of grace are always
allowed to the drawee.
VI. Stamp:
No stamp duty is payable on cheques.
Stamp duty has to be paid on bill of exchange.

27. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
VII. Printed Form:
Cheque is usually drawn on the printed form.
Bill of exchange may be drawn on any paper and need
not necessarily be printed.
VIII. Payment:
A cheque is payable immediately on demand without
any days of grace.
A bill of exchange is normally entitled to three days of
grace unless it is payable on demand.

28. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
IX. Crossing:
A cheque may be crossed.
There is no such provision in the case of a bill of
exchange.
X. Notice of dishonor:
When a cheque is not met, notice of dishonor is not
necessary.
It is necessary to give a notice of dishonor in order to
make the drawer of a bill liable.

29. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
XI. Payable to bearer on demand:
A cheque can be drawn payable to bearer on demand.
A bill of exchange cannot be so drawn.
XII. Countermanding Payment:
A cheque may be revoked by countermand of payment.
Bill of exchange cannot be countermanded.

30. DIFFERENCE BETWEEN CHEQUE AND
BILL OF EXCHANGE
XIII. Protection
A banker is given statutory protection with regard to
payment of cheques in certain circumstances.
No such protection is available to the drawee or
acceptor of a bill of exchange.

31. SCENARIO - CHEQUE
A cheque has been signed for Sheikh Advocate Agency
by its client Zulifqar Associates which is a private entity.
The cheque is of 7 lacs rupees which are to be paid for
a high court case, that is being done for Zulfiqar
Associates by the Sheikh Advocate Agency. On 21st
April, 2018 Zulfiqar Associates signed and provided the
cheque of 7 lacs rupees to the Sheikh Agency.

32. SCENARIO - CHEQUE
This is a “cross cheque” which will be directly
transferred into a bank account and cannot be collected
by any individual separately. The Drawee in this case is
HBL, whereas the Payee is Sheikh Advocate Agency and
the Drawer here is Zulfiqar Associates. This cheque is
submitted to the bank and the amount mentioned will
be transferred in the bank account of the agency, after
a certain time period.