Promissory notes are promises to pay money and are negotiable when drawn as required by the negotiable instruments law.
Promissory notes are defined in the Uniform Negotiable Instruments Law as follows:
"A negotiable promissory note within the meaning of this act 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 order or to bearer. When a note is drawn to the maker's own order, it is not complete until indorsed by him."la
Example 3. Form of Promissory note.
$100.00 Chicago, 111., July 1st, 1920.
August first, 1920, after date, for value received, I promise to pay to the order of William Smith, the sum of One Hundred (100) Dollars, at 1011 Blank Street, Chicago, Illinois, with interest at 6 per cent. per annum, after the date hereof.
(sd.) Walter W. Johnson.
1a. Uniform Negotiable Instruments Law, SEC. 184.
A promissory note, as the name indicates, is the expression of a promise. To be valid as a contract between the parties, there must be all the essential elements necessary to the formation of a contract. To be a negotiable instrument, it must contain other elements. What those elements are is indicated in the definition above, but as they are hereafter more particularly discussed, they will not be further noticed here.
The parties to a negotiable promissory note are: the maker, who is the promisor, and the payee, or the one to whom the promise to pay is made. But the payee may be described as "the bearer," in which event the instrument may be transferred with or without indorsement. If the payee is named he must indorse, and he is then called an indorser, as are all other subsequent transferors who place their names on the back of the instrument.
The power to evidence a debt in the form of a negotiable promissory note secures to one a better credit than perhaps he could otherwise obtain. For it may in any particular instance enable his creditor to immediately realize on the debt by a sale to another, who purchasing before maturity and with no knowledge of any defense against the note, knows that he can enforce it according to its tenor, restrained only by the insolvency of both the maker and the payee, who is now indorser, and even this restraint would be removed were the note adequately secured. And in a suit upon a promissory note it is not necessary to prove the consideration, that is, the transaction out of which it arose, unless a defense is made denying consideration.
"A bill of exchange is an unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer."2
Example 4. Form of bill of exchange.
Cincinnati, Ohio, June 1, 1920.
One month after date, pay to the order of William H. White, One Hundred Dollars. Value received, and charge to the account of
(sd.) Walter W. Johnson. To Oliver Smith,
An acceptance of the above bill would read as follows:
"Accepted, Chicago, June 3rd, 1920," and would be written across the face of the bill.
A bill of exchange is an order drawn by one person, in favor of another upon a third. To be negotiable it must contain the elements indicated in the definition, but as these are discussed hereafter, they need not be further noticed here.
Bills of exchange are either "foreign" or "inland." "An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within this state. Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill."3 The importance of distinguishing between foreign and inland bills will appear later herein.
2. Uniform Nego. Instru. Law, Sec 126.
3. Uniform Nego. Instru. Law, SEC. 129.
Bills of exchange are sometimes drawn in "sets," usually consisting of similar papers called "parts," usually three, each one referring to the others, and all constituting one bill. Care should be taken in dealing with bills so drawn as double liability may ensue. Acceptance by the drawee should be on one part only. See Sections 178 to 183 in Appendix A.
Checks are orders to pay money upon banks by depositors and are negotiable if drawn as required by the negotiable instruments law. "A check is a bill of exchange drawn on a bank payable on demand." 4
Example 5. Form of check.
No. 1490. Chicago, July 1st, 1920
The Blank Trust And Savings Bank
Pay to the order of................John Smith................$1000
(sd.) Wm. Jones.
A check is a kind of a bill of exchange and is governed as far as may be by the same rules that govern bills of exchange. But there are these distinctions.
(1) A check is drawn on a bank or banker;
(2) By one who thereby asserts that he is a depositor and has funds in a checking account sufficient to cover the check.
(3) The check is always payable on demand, whereas a bill of exchange may or may not be.
(4) A check is not intended to remain out unpre-sented for payment except for a brief period.
4. Uniform Nego. Instru. Law, Sec 185.