Page 173 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes The promise or undertaking to pay must be unconditional. A promise to pay “when able”,
or “as soon as possible”, or “after your marriage”, is conditional. But a promise to pay
after a specific’ time or on the happening of an event which must happen, is not conditional.
The maker must be a certain person, i.e., the note must show clearly who the person is
engaging himself to pay. .

The payee must be certain. The promissory note must contain a promise to pay to some
person or persons validated by a name or designation.

The sum payable must be certain and the amount must not be capable of contingent
additions or subtractions.
Payment must be in legal money of the country.

It must be properly stamped in accordance with the provisions of the India Stamp
Act. Each stamp must be duly cancelled by maker’s signature or initials.
It must contain the name of place, number and the date on which it is made.
However, their omission will not make the instrument invalid, e.g. if it is undated, it is assumed
to be dated on the date of delivery.

Notes A promissory note cannot be made payable or issued to bearer, no matter whether
it is payable on demand or after a certain time (Section 31 of the RBI Act).

Self Assessment

Fill in the blanks:
11. In case of a promissory note, an individual who promises to pay is known as the ..................
12. The person to whom the payment is promised is known as the ........................................

13. According to ................................. of RBI Act, a promissory note cannot be made payable or
issued to bearer, no matter whether it is payable on demand or after a certain time.

10.4 Holder

According to Section 8 of the Act a person is a holder of a negotiable instrument who is entitled
in his own name-
(i) to the possession of the instrument, and
(ii) to recover or receive its amount from the parties thereto.

It is not every person in possession of the instrument who is called a holder. To be a holder, the
person must be named in the instrument as the payee, or the endorsee or he must be the bearer
thereof. A person, who has obtained possession of an instrument by theft, or under a forged
endorsement, is not a holder. As he is not entitled to recover the instrument. The holder implies
de jure (holder in law) holder and not de facto (holder in fact) holder. An agent holding an
instrument for his principal is not a holder although he may receive its payment.
“A holder is an individual who is in possession of an instrument that is either payable to him or
her as the payee, endorsed to him or her, or payable to the bearer. Those who obtain instruments

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