2. History of Promissory Note
Early Promissory notes are issued & Sign in
Tang dynasty (Middle China)(618 – 907 AD)
According to tradition, in 1325 AD promissory note
was signed in Milan (city of Italy).
Promissory notes being issued in 1384
between Genova (Italy)and Barcelona(Spain).
3. Promissory Note General Definition
A promissory note is a legal instrument (more
particularly, a financial instrument), in which one
party (the maker or issuer) promises in writing to pay a
determinate sum of money to the other
(the payee), either at a fixed or determinable future
time or on demand of the payee, under specific terms.
If the promissory note is unconditional and readily
salable, it is called a negotiable instrument.
4. Promissory Note
• Section 4 of Negotiable instruments Act
defines Promissory-Note as under:
“Promissory-note as an instrument in
writing (not being a Bank note or a
currency note) containing an unconditional
undertaking signed by the maker, to pay
on demand or money only, to, or to the
order of a certain person, or to the bearer
of the instrument.
5. Promissory Note
Essentials of Promissory Note
(1)It must be an unconditional written
promise.
(2) It must be signed by the maker called
“promiser”.
(3) It must contain a promise to pay a certain
sum in money only.
(4) It may be made by two or more persons,
and they may be liable thereon jointly or
severally.
6. Promissory Note
(5) The amount promised in the promissory
note must be payable on demand or at a
fixed or determinable future time.
7. Bill of Exchange General
Definition
• An unconditional order issued by
a person or business which directs the
recipient to pay a fixed sum of money to
a third party at a future date.
• A bill of exchange must be in writing and
signed and dated.
8. Bill of Exchange
• Section 5 of the negotiable instruments
Act, 1881, defines a bill of exchange as
“An instrument in writing containing an
unconditional order, signed by the maker,
directing a certain person to pay on
demand or at a fixed or determinable
future time, a certain sum of money only
to, or to the person or to the bearer of the
instrument”.
9. Bill of Exchange
Essentials of Bill of Exchange
(1) A bill o exchange must be in writing &
signed by the drawer.
(2) It must contain unconditional order or
direction.
(3) The direction should be to pay a certain
sum in money only.
(4) The drawee should be directed to pay on
demand or at a fixed or determinable future
time.
10. Bill of Exchange
Essentials of Bill of Exchange
(5) The amount should be payable to or to
the order of a certain person or the bearer
of the instrument.
11. Bill of Exchange
Drawer is the maker of the bill of exchange. A
seller/creditor who is entitled to receive money
from the debtor can draw a bill of exchange
upon the buyer/debtor. The drawer after
writing the bill of exchange has to sign it as
maker of the bill.
12. Bill of Exchange
Drawee is the person upon whom the bill of
exchange is drawn. Drawee is purchaser of the
goods upon whom the bill of exchange is
drawn. The dawee has to write the word
“accepted” if he accepts to make the payment
given in the bill on the due date and has to put
his signatures on it. After the drawee of a bill
has signed his assent on the face of the bill, he
is called the acceptor and this process is called
acceptance.
13. Bill of Exchange
Payee is the person to whom the payment
is made. The drawer of the bill himself will
be the payee if he keeps the bill with him
till the date of its payment.
16. Bill of Exchange
Types of Bills
Bills may be the following types:(1) Sent bills or bill for collection:-when bills
are handed over to a banker by his
customer in order that they may be
collected when due & the proceeds
credited to the customer’s A/C they are
called “bills for collection.
17. Bill of Exchange
(2) Bills Negotiated or Bills Discounted:Are those bills for which the banker has
given value at once, without waiting for the
proceeds after collection.
18. Bill of Exchange
(3) Bills Retired:-When a bill withdraw from
circulation or taken up before it is due, it is said
to be “Retired”. Sometimes the acceptor of a
bill of exchange desires to meet the bill before
its maturity if he has sufficient funds. The
holder generally allows the acceptor a rebate
or discount for the unexpired period of the bill.
19. Bill of Exchange
Bills in Set:- Section 132 of the negotiable
instruments Act, 1881, lays down that
when bills of exchange are drawn in two or
more than two parts, they are called “bill in
set” & each part is on a separate piece of
paper; but all parts are worded exactly in
the same language except that the parts
are numerically “the 1st of exchange”, “2nd
of exchange.
