Promissory Note

What is a Promissory Note? – Definition

A promissory note is an instrument in writing (Not being a banknote or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to; or to the order, of a certain person, or to the bear of the instrument”.

Explanation

A promissory note is an unconditional promise in writing made by one person to another, to pay a specific sum of money on demand or after a specific period or at a specific future date.

Specimen/Format of Promissory Note

Specimen-Format-Promissory-Note

Features of Promissory Note:

  1. It must be in writing.
  2. It must be signed by the maker.
  3. It is a promise to pay.
  4. Promise to pay must be unconditional.
  5. The amount of payable must be certain.
  6. Amount must be expressed in terms of money only.
  7. Acceptance is not required.
  8. It can be endorsed.

Difference between Promissory Note and Bill of Exchange

Points of Distinction Promissory Note Bill of Exchange
1. Maker A promissory note is made by debtor. He is to pay the amount of the instrument. It is drawn or made by a creditor. He is the person who is to receive the amount of the bill.
2. Parties There are two parties in promissory note i.e. maker and payee. There are three parties in a bill of exchange i.e. Drawer, drawee and payee.
3. Promise and order It is an unconditional promise to pay. It is an unconditional order to pay.
4. Nature of Liability Liability of maker is primary. Liability of drawer is secondary.
5. Acceptance No need for acceptance to become a complete legal instrument. Acceptance is necessary to become a complete legal instrument. (Except demand bill)
6. Payable to Dishonor It cannot be drawn payable to the maker. It can be drawn payable to the maker.
7. Notice of Dishonor Notice of dishonor of promissory note is not compulsory. Notice of dishonor, of bill of exchange is compulsory.
8. Protest Protest against dishonor is not necessary. Protest against dishonor of foreign bill of exchange is considered necessary.

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