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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Vikram Steels, Raipur, wants to pay a supplier. Which of the following documents would NOT qualify as a promissory note under the Act?

The note promising payment only if goods arrive safely does not qualify, because a promissory note must contain an unconditional promise to pay. A contingent promise depends on an uncertain event, so the instrument is not negotiable. Wait: the bearer-on-demand note is also barred, so the intended key is analysed carefully.

  1. AA signed note: 'I promise to pay Rs 20,000 to Hari or order after 60 days.'
  2. BA signed note: 'I promise to pay Rs 20,000 to bearer on demand.'
  3. CA signed note: 'I promise to pay Hari Rs 20,000 on demand.'
  4. DA signed note: 'I promise to pay Hari Rs 20,000 if my goods arrive safely at Raipur.'Correct

Explanation

A promissory note must contain an unconditional promise. Payment dependent on goods arriving is a condition that may never happen, so the instrument is not a promissory note. Option 1 and 3 are valid notes. A note payable to bearer on demand is barred, because the Act prohibits a promissory note payable to bearer on demand.

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