Cheques

A cheque is a special type of draft by which a bank depositor orders the bank to pay money, usually to a third party. Cheques are usually written on special forms provided by bank for a fee. The forms are usually magnetically encoded. However, cheques may be written on blank sheets of paper, forms or other materials and are still legally payable. The drawee, though, must always be a bank for the instrument to qualify as a cheque.

The bank honours (pays when due) each cheque as long as sufficient funds remain in the depositor’s account. Of course, the bank will retain a sizable percentage of all funds deposited so that it can pay cheques when they are presented.

A person, who deliberately issues a cheque with the knowledge that the funds in the account will be insufficient to pay the cheque, is guilty of a crime. In this case the bank will dishonour the instrument and it will be impossible to get any money from that source.

Promissory Notes

A promissory note is an unconditional written promise by one person to pay to the order of another person or to the bearer a certain sum of money on demand or at a definite time.

Promissory notes initially involve only two parties — the maker and the payee. The maker is the one who executes or makes a promissory note and promises to pay. If two or more parties join in executing the note, they are comakers and are equally liable for payment.

Personal property may be pledged to secure performance — that is, to insure payment — of a note. When this fact, together with a description of the property, is stated on the face of the note, the paper is a collateral note. A collateral note typically provides for the sale of the security by the payee if the note is not paid when due.

When real property is a security for payment, the note is a mortgage note. The payee can force a sale of the real property and use the proceeds for payment if the payment is not made when due.