Promises to Pay versus Order to Pay

There exist similarities as well as differences between promises to pay and orders to pay. In a promissory note there are
two parties—the maker who makes the promise and payee who is to receive payment. In an order to pay, there are three
parties—the drawer, the drawee, and the payee. The promissory note contains a promise and has the personal element
to comply while the order to pay is a command and the execution may or may not materialize.
Money Market Instrument
Apart from savings accounts, fixed deposit and the like, a number of other instruments are frequently used in the money
market.
1. Treasury Bills- treasury bills are short-term securities issued by the country’s Treasury. This will reduce a
bank’s ability to lend to its clients leading to a contraction of the money supply.
2. Banker’s Acceptance/ Letter of credit. Although BA’s, as they are known, have their origin in trade bills issued
by merchants, today they are an important money market instrument. It is the time drafts and accepted by
bank
3. Negotiable Certificates of Deposits. NCD’s are like fixed deposits except they are bearer documents. They
offer a market related rate of interest and are completely liquid because they can be negotiated during the
term of the deposit.
4. Commercial Paper. Short-term commercial paper is debt instrument commonly issued by corporations to
fund a temporary capital requirements. This form of corporate borrowing usually matures within one year.
5. Bank Guarantees. A Guarantee by Bank is a written undertaking wherein the bank agrees to make stipulated
payments on your behalf should you fail to fulfill a carry out specified terms of a contract.
Negotiation
Without prejudice to legal concepts, negotiation means the transfer of the instrument from one person to another either
by endorsement and delivery, by mere delivery or by assignment.
Negotiation has a certain condition. These are follows:
1. The credit instrument is complete and regular on face value.
2. The holder obtains possession of the instrument before it has become par value and even without notice that
it was previously dishonored;
3. The holder took the instrument in good faith and for value.
4. At the time it was negotiated to the holder, no defects in instrument or title were detected.
Presentment
Presentment means the exhibiting of the instrument at the bank either for payment or for acceptance. The check should
be presented for payment within a reasonable period of time after its issue according to the Negotiable Instruments Law.
A draft, on the other hand, may be presented for payment after its last negotiation within a reasonable period.
Dishonor
This only means that the check is refused payment or a time draft is refused acceptance. The refusal, therefore, may be
termed dishonor by non-payment or nonacceptance. If this happens, the holder of the instrument may file a protest in
writing or orally. The law prescribes the way a protest is to be made. However, the protest may also be waived.
Endorsement
Endorsement forms part of a negotiation of an instrument. It is simply indicated by the signature of the endorser at the
back of the instrument or an attached thereto. If such is the case, it is termed as blank endorsement. When a specified
person is named as the transferee, followed by the signature of the endorser, this is termed special endorsement.
An endorsement which restricts the further negotiation of the instrument is deemed as a restricted endorsement. For
example the check is endorsed as “For deposit only” followed by the signature of the endorser.
An endorsement is qualified when the words “Without recourse” appear as part of the endorsement. This does not
impair the negotiability of the instrument, however. It transfer the title and warrants the genuineness of the instrument,
but does not guarantee the payment of the endorser in case the bill has defects. The liability of the endorser on the note
or bill will then be determined according to the type of endorsement made by him.
Significance of Bank Credit Instrument
Besides facilitating to a great extent the dealings in credit, such bills of exchange and promissory notes might also bring
about losses on the part of the bank. Hence, care should be taken in the preparation of these papers. For example,
checked maybe forged not only as to signature but also as to the other material parts such as the date, the amount, and
the payee. In such cases, the bank may become liable for payments on these. A check issued by a person implies his
promise to pay. In order not to destroy the trust of the public and banks, depositors should see to it that they have
sufficient funds to cover the checks the issue.
Since the bank is also responsible for honor checks for payment, or bills or exchange in general, it should see to it that its
normal cash needs would always be enough to answer the demands of depositors and customers. In this way, the public
confidence in the soundness of banks and their patronage of the banking system as a whole shall be strengthened
considerably.