Q.8 Describe promissory note, its characteristics and its parties of promissory note.
Ans. PROMISSORY NOTE
Promissory note is a negotiable credit instrument, where a debtor or buyer promises to pay a fixed amount on particular future date, to the creditor or seller, for the value received. To give a legal status to a promissory note, revenue stamp is imprinted on it according to its value. The creditor or seller can discount it from a bank and in this way he can avail funds. Bank received the amount from the debtor or buyer after the completion of its time.
According to the Negotiable Instruments Act 1881
“A promissory note is an Instrument in writing (not being bank note or a currency note) containing an unconditional undertaking. Singed by the maker, to pay on demand or at a fixed or determinable future time a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.”
In simple it is a document stating that a person promises to pay another a specified sum at a certain time.
A promissory note is considered incomplete until it is delivered to the payee or bearer. it is often used in finance of foreign trade. Two or more makers may make a promissory note, and they may be liable thereon jointly and severally
Following are the main characteristics of promissory note:
(1) WRITTEN PROMISE
It is a promise in writing normally on a stamp-paper.
(2) UNCOND1TIONAL PROMISE
It is an unconditional promise of payment
(3) PAYMENT IN CASH
Its payment is made in terms of cash only.
(4) FIXED AMOUNT
It is drawn for a fixed amount, which is written in figures as well as in words on it.
(5) FIXED DATE
It is drawn for a fixed due date, which s to be written on it.
(6) SIGNATURE OF DRAWER
It is signed by its drawer.
Its rights can be transferred from one person to another.
(8) REVENUE STAMP
A revenue stamp is imprinted on it-value of stamp varies with the amount of the note.
There are two parties to a promissory note. One is drawer (debtor or buyer) and the other is drawee (payee or creditor or seller). They are necessarily specified in the note.
PARTIES TO A PROMISSORY NOTE
The parties to a promissory note can be categorized into two classifications:
1. MAIN PARTIES
There are two persons in this class.
Drawer is a person, who promises to pay the sum and signs the note. He may be a debtor or buyer.
(ii) DRAWEE OR PAYEE
There are also two persons in this class:
Endorser is a person, who transfers the rights of the note to another person. For this purpose the endorsee just signs on the rear of the note.
Endorsee is a person to whom the rights of note have transferred.
KINDS OF PROMISSORY NOTE
Kinds of a promissory note can be categorized into two classifications:
INLAND PROMISSORY NOTE
The drawer and the payee of a promissory note if belong to a single country then this note is called inland promissory note. Inland notes have the following two categories:
(i) INLAND INDIVIDUAL PROMISSORY NOTE
Promissory note having a single person as drawer is called individual promissory note. This person accepts the responsibility of its payment. In case of nonpayment a lawsuit may be made against that person.
(ii) INLAND JOINT PROMISSORY NOTE
A promissory note having two or more person as drawer is called a joint- or collective promissory note. The entire are responsible for making the payment of this note. In case of nonpayment a lawsuit may be filed against all of them.
2. FOREIGN PROMISSORY NOTE
The drawer and the payee of a promissory note if belong to different countries then this note is called foreign promissory note. Foreign notes also have the following two categories.
(i) FOREIGN PROMISORY NOTE
Foreign promissory note having only one person as drawer is called foreign individual promissory note. The drawer accepts the responsibility of payment individually. In case of nonpayment a lawsuit may only be made against that person.
(ii) FOREIGN JOIN PROMISORY NOTE
Foreign promissory note having two or more drawers is called a foreign joint-or collective- promissory note. All of them are responsible for its payment. In case of nonpayment a lawsuit may be made against all of them. They spend their honeymoon in rome, and on page paper-writer.org 211 of vol