Definition and Process of Checks and Promissory Notes
Classified in Law & Jurisprudence
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Check.-
Definition.- is a bill of exchange drawn on behalf of a banker, which is payable on demand by the banker.
Three - party
the person who orders the drawn is the drawer
the person against whom it is drawn is the drawee (the banker) and is ordered to pay
the person to whom the draft is payable is known as the payee.
Process.- The drawer gives the payee a written order that directs the drawee to pay money to the payee or to whomever the payee designates through an appropriate indorsement. The payee must collect the money from the drawee, by physically presenting the draft and demanding payment. Checks are different from other instruments because they are drawn on a bank and are payable on demand.
Notes.-
A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.
Two - party instrument: Issued by a maker to a payee
Process.- Rather than ordering a third party to pay the instrument, the maker promises to pay it in accordance with the terms on its face.
Purpose.- Notes are used primarily for credit functions. They facilitate the purchase of goods and services on credit, as well as serve to evidence a debt for borrowed money.
Utility.- Notes can be either a time note payable at a definite time or a demand note payable upon the demand of the payee.
Endorsement of a Bill of Lading
A bill of lading and the claim it represents may be transferred to another person by endorsement and delivery of the document. By such transfer, all the rights and obligations embodied in the document are transferred to the new holder. The latter is entitled to demand delivery of the goods unless the carrier proves that the holder knew or through gross negligence was unaware of the transferor's lack of title to the bill. In contrast with the rules on negotiable instruments, an endorsement of a bill of lading does not make the endorser liable for any default of the carrier or previous endorsers. The bill represents the goods, and transfer of the bill is, therefore, equivalent to delivery of the goods to the transferee.
It depends on the intention of the parties whether ownership in the goods or merely a security interest in them is to be transferred. A security interest is typically acquired by a bank, which gives credit on the security of the shipped goods. The above rules also apply to bills of lading issued in river navigation.