Promissory Note

What is Promissory Note?

Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”

Bill of exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the creditor.


Promissory Note, on the other hand, is a promise to pay a certain amount of money within a stipulated period of time. And the promissory note is issued by the debtor.

Characteristics of a Promissory Note

To be a promissory note, an instrument must possess the following essentials characteristics of a promissory note:

  1. Must be in writing: A mere verbal promise to pay is not a promissory note. The method of writing (either in ink or pencil or printing, etc.) is unimportant, but it must be in any form that cannot be altered easily.


  2. Must certainly an express promise or clear understanding to pay: There must be an express undertaking to pay. A mere acknowledgment is not enough. The following are not promissory notes as there is no promise to pay.

    Example: ‘Mr. B.I.O.U Rs. 10,000’. There is no promise to pay and therefore this is not a valid promissory note.


  3. Must be unconditional: A conditional undertaking destroys the negotiable character of an otherwise negotiable instrument. Therefore, the promise to pay must not depend upon the happening of some outside contingency or event. It must be payable absolutely.


  4. Signed by the maker: The person who promises to pay must sign the instrument even though it might have not been written by the promisor himself. There are no restrictions regarding the form or place of signatures in the instrument. It may be in any part of the instrument. It may be in pencil or ink, a thumb mark or initials.


  5. Must be certain: The note self must show clearly who the person is agreeing to undertake the liability to pay the amount. In case a person signs in an assumed name, he is liable as a maker because a maker is taken as certain if from his description sufficient indication follows about his identity. In case two or more persons promise to pay, they may bind themselves jointly or jointly and severally, but their liability cannot be in the alternative.


  6. The payee must be certain: The instrument must point out with certainty the person to whom the promise has been made. The payee may be ascertained by name or by designation.


  7. The promise should be to pay money and money only: Money means legal tender money and not old and rare coins. A promise to deliver paddy either in the alternative or in addition to money does not constitute a promissory note.


  8. The amount should be certain: One of the important characteristics of a promissory note is a certainty- not only regarding the person to whom or by whom payment is to be made but also regarding the amount.

Bill of Exchange Parties

  • Drawer: is a debtor or borrower. The person who makes the promise to another to pay the debt.

  • Drawee: is a credit or lender. The person on whom the bill is drawn.

  • Payee: The person to whom the money is to be paid or a person receiving payment.

Business Law Notes

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Business Law Book References

  1. Goel, P. K. (2006). “Business Law for Managers” Wiley
  2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
  3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

FAQ

What is Business Law?

Business Law is also known as Commercial law or corporate law, is the body of law that applies to the rights, relations, and conduct of persons and businesses engaged in commerce, merchandising, trade, and sales.

Also Read:
1. Business Law Definition
2. Business Law Meaning
3. Business Law of India

Indian Contract Act 1872

The Indian Contract Act is divisible into two parts.
The first part (Section 1-75) deals with the general principles of the law of contract and therefore applies to all contracts irrespective of their nature.

The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.

Also Read:
1. Essential Elements of a Valid Contract

Performance of a Contract

It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.
– Sec. 31, The Sale of Goods Act, 1930

Also Read:
1. Delivery of Goods
2. Types of Delivery
3. Rules for delivery of goods

Sales of Goods Act 1930

Sales of Goods Act 1930 came into force on 1st July 1930. It extends to the whole of India. It does not affect rights, interests, obligations and titles acquired before the commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the goods.

Read Complete:
1. Essentials of Valid Sales
2. How the Contract of Sale Comes About
3. Difference Between Sale And Agreement To Sell

Conditions and Warranties

The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime significance in a contract of sale.

Read Complete:
Implied Conditions
Implied Warranties

Difference Between Conditions and Warranties

Crossing of Cheque

The crossing of Cheque means that the specific cheque can only be deposited straightway into a bank account and cannot be instantly cashed by a bank or any credit institution.

Read Complete:
Types of Cheque Crossing
1. General crossing
2. Special Crossing
3. Restrictive crossing

Boucing of Dishonour of Cheques

Bill of Exchange

Bill of exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the creditor.

Read Complete:
1. Example of Bill of Exchange
2. Features of Bill of Exchange
3. Bill of Exchange Parties

What is Cheque?

cheque is a bill of exchange, drawn on a specified banker and it includes ‘the electronic image of truncated cheque’ and ‘a cheque in electronic form’.

Read Complete:
1. Characteristics of a Cheque
2. Parties of Cheque
3. Truncated Cheque
4. Cheque in electronic form
5. Presentment of truncated cheque


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