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◇Learn the definition of promissory note．
◇Learn the definition and classification of check．
◇Learn the process of check clearing．
◇Consider the connection of different types of financial instrument．
A promissory note is an unconditional promise in writing made by one person（the maker） to another （the payee） 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 bearer．
Promissory note can also be termed as note． Figure 5.1 is an example of a promissory note．
Figure 5.1 Promissory Note
Similar to bills of exchange， the definition of promissory note stipulates the essentials which are prerequisite to validate it． The essentials can be shown in the following breakdown：
（1）An unconditional promise in writing．
（2）Made by one person （the maker）．
（3）To another （the payee）．
（4）Signed by the maker．
（5）Engaging to pay．
（6）A sum certain in money．
（7）On demand or a at a fixed or determinable future day．
（8）To or to the order of a specified person or bearer．
As another major type of credit instruments， promissory notes， compared with bills of exchange， are equally subject to the provisions Bills of Exchange Act except the following differences：
（1）A promissory note is an unconditional promise， whereas a bill is an unconditional order．
（2）Immediate parties． There are only two immediate parties to a promissory note， namely the maker and the payee； whereas there are three basic parties to a bill of exchange， namely the drawer， the drawee and the payee． The maker of a note corresponds to the drawer and the drawee of a bill．
（3）Acceptance requirement． As the maker of a promissory note is the person primarily liable on it， acceptance is not applicable to it． For this reason， time note is seldom made payable at a fixed time after sight； whereas acceptance is generally required for a time bill， especially for a time bill payable at a fixed time after sight．
（4） Protest requirement． Protest is not applicable to a foreign note in the event of dishonor， whereas a dishonored foreign bill must be protested for the holder to obtain right of recourse．
（5）The drawer and the payee． The maker and the payee cannot be the same person for a note； whereas a bill of exchange allows the drawer and the payee to be the same person．
（6）Full set． A promissory note is a solo note when issued， whereas a bill of exchange is usually in a duplicate set when issued． When one part of a bill is paid，the other part becomes void．
（1） Banker's note． The promissory note has found its wide application in banks． A banker's note made by a bank payable to a specified person can be deemed as cash．
A sight banker's note payable to bearer is a“legal tender” which is part of the currency realm． Banker's sight bearer order notes are put under special statutory basis and can be issued by the central bank or the authorized banks only．
As an uncontrolled issue of banker's sight bearer order notes by commercial banks will certainly disturb a country's monetary system． Therefore， commercial banks can only issue note payable to a specified person．
（2）Trader's note． Trader's note， also termed as commercial papers， is a time bearer order promissory note whose maker is a firm or a trader． Whoever pays the face value to the maker becomes the payee of the note．
Trader's note is not to be used as payment tool． It is issued for the drawer to raise funds from the public， so it is issued with interest to the public． When local government or big enterprise issues time note， normally with the tenor to be within a year， to the public for similar purpose to raise funds， it is called bonds．
（3） Treasury bill． Though named bill， treasury bill is a time bearer order promissory note issued by the central bank authorized by the Ministry of Finance．Treasury bills are sold on discount at a certain rate per annum to investors， mostly commercial banks with the tenor to be made at 91 days after date．
Net proceeds are the selling price of the treasury bill． The investor buys treasury bill at net proceeds and gets face value when the treasury bill falls due． The discount interest represents the investor's profit．
Similar to trader's note， treasury bill is not to be used as payment tool， either．It is issued for the central government to raise funds and the payee to make a profit， and more importantly， for the central government to regulate money surplus and deficiency in the market．
An unconditional order in writing addressed by the customer to a bank signed by that customer authorizing the bank to pay on demand a sum certain in money to or to the order of a specified person or bearer．
In simple words， a check can be understood as a bill of exchange drawn on a banker on demand． Check can also be spelt as cheque． Figure 5.2 is an example of a check．
Figure 5.2 Check
Checks are pre－printed by the banker for its customers． Blank check books are held by the customer who fills in （draws） a check when needed and deliver it to the payee．
Similar to bills of exchange and promissory note， the definition of check stipulates the essentials which are prerequisite to validate it． The essentials can be shown in the following breakdown：
（1）An unconditional order in writing．
（2）Addressed by the customer （drawer）．
（3）To a bank （drawee）．
（4）Signed by that customer．
（5）Authorizing the bank to pay．
（6）On demand．
（7）A sum certain in money．
（8）To or to the order of a specified person or bearer （payee）．
There are three immediate parties to check：
（1）The drawer． To “draw” means writing out a check for a certain amount of money in the account with the banker． In other words， the drawer is the person who writes the check．
Before a person can draw a check on a bank， he must first obtain an account with the bank． Secondly， when drawing a check， it is the drawer's responsibility to make sure that there is enough balance in his account to cover the check amount．Otherwise， the check will be bounced．
（2）The drawee． The drawee is a bank on whom the check is drawn and to whom the order to pay is given． He is the bank with which the drawer maintains an account．
The bank is obliged to honor a customer's check up to the amount of his credit balance or agreed overdraft． In the case when the bank wrongly dishonors a customer's check， it is to bear the full responsibility and will make the necessary compensation．
（3）The payee． The payee is a person to whom the check is expressed to be payable．
（1）Uncrossed check． An uncrossed check refers to the one which is written on“plain” bank form， without two parallel lines drawn on the face． An uncrossed check can be exchanged for cash over the counter when the payee ／ holder presents it for payment to the drawee bank． Figure 5.3 is an example of an uncrossed check．
Figure 5.3 Uncrossed Check
（2） Crossed check． A crossed check refers to two parallel lines drawn on its face， and usually this is done on the top left corner of the check． The payee ／ holder of a crossed check cannot get cash payment over the counter and the check amount should be paid into a bank account． The purpose of crossing a check is to ensure that the right holder to obtain the payment． Crossed check is further divided into two types．
①General crossing． A check is generally crossed when the check bears two parallel lines across its face， either with or without the words “ and company”“＆Co．”“not negotiable”“A／ C payee” between the lines． Figure 5.4 shows a general crossing．
Figure 5.4 General Crossing
The effect of a general crossing is to make the check payable through a bank account only． General crossing does not specify the collecting bank． That is to say，the drawee bank should honor the check presented by any bank provided it is a correctly complete valid one．
②Special crossing． When a check bears across its face an addition of the name of a banker， either with or without the words “and company”“＆ Co．”“not negotiable”“A／ C payee” and the two parallel lines， that addition constitutes a special crossing． Figure 5.5 shows a special crossing．
The effect of a special crossing is to make the check payable only through the account of that specified bank （e．g． ABC Bank Limited， Chengdu） which is to act as the collecting bank． No other bank is to present the check for payment．
It should be noted that both the drawer and the payee can do the following：
Firstly，Cross an uncrossed check．
Secondly，Change a general crossing to a special one．
Figure 5.5 Special Crossing
（3）Crossed check clearing． For the payee ／ holder to get the crossed check amount， he must first deposit the crossed check into a bank with which he maintains an account and upon which he makes a request to collect the check amount for him． This bank is called the collecting bank and may or may not be the drawee bank of the check．
The following procedure in Figure 5.6 shows the steps to clear a crossed check， supposing that the payee ／ holder deposit a crossed check into a bank （the collecting bank） other than the drawee bank．
Figure 5.6 Crossed Check Clearing Procedure
①The drawer draws a check and delivers it to the payee．
②Payee deposits the check to the collecting bank and asks the latter to collect the payment for him．
③After scrutiny， the collecting bank forwards the check to the drawee bank on behalf of the payee．
④After scrutiny， the drawee debits the amount from the drawer's account with him．
⑤The paying bank transfers the funds to the collecting bank．
⑥The collecting bank credits the amount to the payee's account．
As another major type of credit instruments， compared with bills of exchange，checks are equally subject to the provisions of Bills of Exchange Act except the following differences：
（1）A bill of exchange may be drawn by any person upon another， whereas a check can be only drawn by a customer on his banker where he maintains an account with sufficient credit balance in it．
（2）The tenor of the bill may be either sight or time whereas the check can only be made payable on demand．
（3）After the bill is accepted， the acceptor is primarily liable for payment．Acceptance is not applicable to a check and the drawer should always hold primary liability to the check．
（4）Acceptance made by the acceptor of a bill is irrevocable whereas the duty and authority of the drawee bank to pay a check may be terminated by the countermand of payment by the drawer．
（5）The rules concerning crossing are applicable to check only． In addition， it should be noted that check is not designed to be negotiated， the rules on negotiation has little significance on check．
Table 5.1 compares the differences of the three major forms of financial instruments．
Table 5.1 Comparison of Draft，Promissory Note and Check
1.A time note can be payable____．
A． at a fixed time after sight
B． at a fixed time after date
C． at a fixed time after the occurrence of an event which is certain to happen
D． at a fixed future date
2.________can be made to be the payee of a check．
A． a trader
B． a firm
C． a bank
D． an individual
3.That____is／ are correct about check．
A． check is a conditional payment order
B． the drawee of a check can be a bank， a firm or an individual
C． check can be sight or time
D． check is a demand draft on a bank
4.When the balance in the drawer's account is not enough to cover the check amount， the check is a／ an____．
A． uncrossed check
B． bad check
C． crossed check
D． specially－crossed check
5.For a check，the relationship between the drawer and drawee is____．
A． importer and exporter
B． supplier and its customer
C． bank and its customer
D． debtor and creditor
1.The____of a promissory note is the party primarily liable on it．
2.The investor buys treasury bills at____and gets____when the bills fall due．
3.A “ legal tender” is a____， bearer order note issued by the country's____bank authorized by the finance department of that country．
4.Either the____or the____of a check can change a general crossing to a special one．
5.When a check bears across its face an addition of the name of a ____， either with or without the words “and company”“＆ Co．”“not negotiable”“ A／ C payee” and the____， that addition constitutes a special crossing．
1.If GBP 5 000 000.00 treasury bills were sold on a discount at the rate of 6.5％ per annum． Write out and calculate the selling price of these bills based on 365 days a year．
2.Xiao Fang， a student currently studying at a university in Chengdu， China，receives a birthday check at USD 1 000 from her uncle， Mr． Wang， in America drawn on Bank of America， New York， answer the following questions：
（1）Indicate the parties and tenor of the check．
（2）How to clear／ cash the check in a feasible way？
X issued a check on Bank B payable to Y． But Y delayed for a long time before he went to the bank to present the check for payment， during which time， unfortunately， Bank B went bankrupt and Y could not cash the check． Unable to obtain payment from the drawee， Y went to X for payment． But the check was dishonored by X because X held that the check was overdue and expired．
Question：Can X dishonor the check？ Did X give proper reasons for the dishonor？
Answer the following questions：
1.Translate “绿色债券” into English and point out the type of instrument it belongs to．
2.Do some research about the major functions， application and significance of“绿色债券”．