Professional Documents
Culture Documents
a. Promise or order
A note contains an unconditional promise by the maker to pay the payee. While, a bill
contains an unconditional order of the drawer to the drawee to pay the payee.
b. Number of parties
A note has two parties, the maker and the payee. Whereas, a bill has three parties, the drawer,
the drawee and the payee.
c. Whether maker, drawer can be payee?
In the case of a note, the maker cannot be the payee, since the same person cannot be both the
promisor and the promisee at the same time, while, in the case of a bill, the drawer can be the
payee, e.g. pay to me or order.
d. Position of payee
In the case of a note, the payee has immediate relation with the maker. Whereas, in the case
of a bill, the payee has immediate relation with the drawee.
e. Creation of liability
Making itself of a note creates liability of the maker. Whereas, acceptance of a bill creates
liability of the drawee.
f. Nature of liability
In the case of a note, the liability of the maker is primary and absolute. While, in the case of a
bill, the liability of the drawer is secondary and conditional. If the drawee does not accept the
bill, only then the liability of the drawer arises.
i. Notice of dishonour
When acceptance of a bill is denied, notice of dishonour must be given to the drawer and to
the immediate indorsers. Whereas, a note does not require acceptance, and as such, the
question of notice of dishonour does not arise at all.
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DISTINCTIONS BETWEEN BILL OF EXCHANGE AND CHEQUE
A bill remains in circulation so long it remains unpaid. A cheque becomes stale if it is not
presented within a reasonable time, normally six months.
f. Scope of activity
g. Special form
In the case of a bill, no special form is necessary. A cheque is always drawn on a paper
specially supplied by the bank.
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DISTINCTIONS BETWEEN NOTE AND CHEQUE
a. Promise or Order
A note contains an unconditional promise. While, a cheque contains an unconditional order.
b. Number of Parties
A note has two parties, maker and payee. Whereas, a cheque has three parties, drawer, drawee
and payee.
c. Whether any formality is required
In the case of a note, no formality is necessary, while a cheque is always drawn on paper
supplied by the banker.
d. Whether payable on demand
A note is payable on the expiry of a certain period or on demand. Whereas, a cheque is
always payable on demand.
KINDS OF CHEQUES
a. Open cheque
An open cheque is one which is payable in cash across the counter of the bank. Obviously,
such a cheque is exposed to great risk in the course of circulation, e.g. it may be stolen or
lost, and any person getting hold of it, can encash it, unless the drawer has already
countermanded the payment.
b. Crossed cheque
A crossed cheque is one which has two short parallel lines marked across its face. It is
payable only to another bank through which it is presented. Naturally, it will not be paid
across the counter. Crossed cheque affords great protection to the payee.
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Not negotiable
A cheque containing the words not negotiable loses its features of negotiability, i.e.
transferability free from defects and transferability by indorsement. It is like any goods. The
transferee will get the same rights as regards payment as the transferor (Section 130), but the
transferee will not get the rights of a holder in due course. So, the transferee takes it at his
own risk. The object of not negotiable crossing is to afford protection to the drawer or holder
against miscarriage or dishonesty in the course of transit.
a. When the drawer countermands payment, i.e. instructs the banker not to honour a cheque.
The effect of such a notice is the same as if no cheque has been issued.
b. When the banker receives notice of the drawers death, since such a notice determines
the authority of the banker to honour cheques issued by the drawer.
c. When the drawer becomes insolvent.
d. When the Court declares the drawer insolvent and the banker receives Courts order
attaching the money of the drawer in the custody of the banker.
e. When the banker receives notice of drawers insanity.
f. When the cheque is irregular ambiguous, or otherwise materially altered.
g. When the banker finds out that the holders title is defective.
h. When the banker receives notice of closing of account.
a. When the banker has insufficient funds of the drawer with him.
b. When a cheque is of doubtful legality.
c. When a cheque is not duly presented, e.g. presented after banking hour.
d. (In the case of joint account) where the cheque has not been signed jointly.
e. Where a cheque has become stale, i.e. has not been presented within a reasonable period
from the date of payment. Such period is normally six months.