Page 179 - DMGT102_MERCANTILE_LAWS_I

Unit 14: Law of Negotiable Instruments

7. The instrument must be such or in such a state that it can be transferred like cash by mere Notes
delivery (as in the case of a bearer instrument) or by delivery and endorsement (as in the
case of an order instrument).

14.3 Promissory Notes and Bills of Exchange

14.3.1 Promissory Note

A promissory note is an instrument in writing (not being a bank 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 instrument (Sec.4). The following are two illustrations
of promissory notes.

Example: “We have received a sum of ` 9,000 from Shri R.R. Sharma. This amount will be
repaid on demand. We have received this amount in cash.” This is a promissory note.
Where A signs instruments in the following terms: (i) “I promise to pay B or order ` 500.” (ii) “I
acknowledge myself to be indebted to B in ` 1000, to be paid on demand, for value received.”

But, the following are NOT promissory notes: (i) “Mr B, I.O.U. (I owe you) ` 1000.” (ii) “I am
liable to pay you ` 500”. (iii) “I promise to pay B ` 500 and all other sums which shall be due to
him.” (iv) “I promise to pay B ` 500, first deducting thereout any money which he may owe me.”

(v) “I promise to pay B ` 1500 on D’s death, provided he leaves me enough to pay that sum.” (vi)
“I promise to pay B ` 500 seven days after my marriage with C.” (vii) “I promise to pay B ` 500
and to deliver to him my white Maruti Car 1 January next.”

Example: A promises to pay B ` 500 provided C leaves sufficient money in favour of A

after C’s death. It is not a promissory note.

Note Specimen of a Promissory Note
` 10,000 New Delhi – 1100 01
Jan. 10, 2006
On demand [or six months after date] I promise to pay X or order the sum of rupees ten
thousand with interest at 12 per cent per annum only for value received.
To X Sd/-A
Address……………. Stamp

Parties to a Promissory Note

1. Maker: The person who makes the note promising to pay the amount stated therein.
2. Payee: The person to whom the amount of the note is payable.
3. Holder: It is either the original payee or any other person in whose favour the note has been
endorsed.
4. Endorser: The person who endorses the note in favour of another person.
5. Endorsee: The person in whose favour the note is negotiated by indorsement.

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