Promissory Note & Bill Of Exchange

Presented By Syed Kashif Shah(Group Leader) Kashif Ali

History of Promissory NoteEarly Promissory notes are issued & Sign inTang 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).

Promissory Note General DefinitionA 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.

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.

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.

Promissory Note

(5) The amount promised in the promissory note must be payable on demand or at a fixed or determinable future time.

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.

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”.

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.

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.

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.

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.

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.

Bill of Exchange

Bill of Exchange

Payee

Drawee Drawer

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.

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.

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.

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.