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Questions and Answers
What distinguishes a promissory note from a bill of exchange in terms of the number of parties involved?
What distinguishes a promissory note from a bill of exchange in terms of the number of parties involved?
A promissory note involves 2 parties: the maker and the payee, while a bill of exchange involves 3 parties: the drawer, the drawee, and the payee.
Explain the requirement of acceptance in a bill of exchange compared to a promissory note.
Explain the requirement of acceptance in a bill of exchange compared to a promissory note.
A bill of exchange requires acceptance from the drawee, whereas a promissory note does not require such acceptance since it is signed by the maker who undertakes the promise to pay.
Can a promissory note be made payable to bearer? Why or why not?
Can a promissory note be made payable to bearer? Why or why not?
No, a promissory note cannot be made payable to bearer because it requires an unconditional promise to pay a specified payee.
Define a cheque based on the provided content and mention its unique characteristic.
Define a cheque based on the provided content and mention its unique characteristic.
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In what way is the promise and order feature different between a promissory note and a bill of exchange?
In what way is the promise and order feature different between a promissory note and a bill of exchange?
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What is the term used for an instrument that cannot be clearly identified as a bill of exchange or a promissory note?
What is the term used for an instrument that cannot be clearly identified as a bill of exchange or a promissory note?
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According to the Negotiable Instruments Act, 1881, which of the following is included in the definition of Negotiable Instruments?
According to the Negotiable Instruments Act, 1881, which of the following is included in the definition of Negotiable Instruments?
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How many parties are involved in a bill of exchange?
How many parties are involved in a bill of exchange?
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Which instrument is not classified as an inland instrument?
Which instrument is not classified as an inland instrument?
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What is the term for a negotiable instrument that can function as both a promissory note or a bill of exchange?
What is the term for a negotiable instrument that can function as both a promissory note or a bill of exchange?
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Study Notes
Negotiable Instruments Overview
- An instrument that is neither clearly a bill of exchange nor a promissory note is termed an ambiguous instrument.
- Under the Negotiable Instruments Act, 1881, the term Negotiable Instruments includes promissory notes, bills of exchange, and cheques.
Parties Involved
- Bills of exchange involve three parties: the drawer, drawee, and payee.
- Promissory notes include two parties: the maker and the payee.
Types of Instruments
- Inland instruments are those made, payable, and drawn on persons within India.
- Bills of exchange and cheques must be presented at a specified place to charge any party liable.
Presentment of Instruments
- Cheques must be presented at the drawing bank before any relationship alterations that might disadvantage the drawer.
- Instruments not specifying a place for presentment should be presented at the usual residence or business of the drawer or acceptor.
- If the maker or drawee has no known address, presentment can occur wherever they can be found.
Characteristics of Instruments
- A promissory note features an unconditional promise to pay a certain sum to a specified person or their order.
- A bill of exchange contains an unconditional order directing payment to a specific person or their order or to the bearer of the instrument.
- A cheque is a specific form of bill of exchange drawn on a banker, payable on demand, including forms like electronic and truncated cheques.
Presentation Requirements
- Documents must be presented for payment within a reasonable time after receiving the instrument.
- Acceptance is not required for promissory notes but is necessary for bills of exchange.
- Delayed presentment for cheques may be excused for reasons beyond the holder's control.
Dishonour and Compensation
- In cases of dishonour of a negotiable instrument, holders can claim the due amount, associated expenses, and 18% annual interest.
- Cheques returned due to insufficient funds must comply with specific timeframes for presentment and notification of dishonour.
Knowledge Check
- Negotiable instruments are transferable through simple delivery or indorsement and delivery.
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Description
Test your knowledge on the Negotiable Instruments Act, 1881, with this quiz featuring questions on various types of negotiable instruments like bills of exchange and promissory notes. Challenge yourself to identify vague instruments and understand the number of parties involved in bills of exchange.
