CHAPTER # 08 XII BANKING

PROMISSORY NOTE
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TABLE OF CONTENTS
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S.No TOPIC Pg No

01 Short Answered Questions 01 T

02

03
Detailed Answered Questions

Multiple Choice Questions

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05
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04 Answer Key to the MCQs 05 M
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05 Past Papers 06

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SHORT ANSWERED QUESTIONS
Q1. Define Promissory Note.
Address:
Address: Near
Near Numaish،
Numaish، 174
174 Britto
Britto Rd,
Rd, Soldier
Soldier Bazaar
Bazaar Contact
Contact No:
No: 021-32253713,
021-32253713, 32221710
32221710 &
& 32221711
32221711
 CLASS – XII Page | 1
BANKING promissory note By: Muhammad Hassan

Definition:
Section 4 of the Negotiable Instruments Act 1881, defines promissory note as under: F
“Promissory note is 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 at a fixed A
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.”
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Q2. Write down the essentials of Promissory Note along with its parties.

Essentials of a Promissory Note:

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According to Section 4 of the Negotiable Instruments Act 1881, the following are the
essentials of promissory note:
 It must be an unconditional written promise.
 It must be signed by the maker called promisor.
 It must contain a promise to pay a certain sum of money only. I
 The money should be payable to or to the order of a certain person or to the bearer of
the promissory note.
 It may be two or more persons, and they may be liable thereon jointly and severely. Y
 The amount promised in the promissory note must be payable on demand or at a fixed
or a determinable future time. A
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Parties to a Promissory Note:
There are two parties to a promissory note. They are as follows:

1. Drawer / Maker:
It is the person who owes money. He is a debtor. He makes the promise to pay off the
borrowed money.

2. Payee:
It is the party to whom the promise is made. He is the creditor.
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Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711
 CLASS – XII Page | 2
BANKING promissory note By: Muhammad Hassan

Q3. Differentiate between Cheque and Promissory Note.

Sno Cheque Promissory Note F

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1. Cheque is drawn by Creditor (Account
Holder) on Debtor (The Bank).
Promissory Note is Drawn by Promisor
(Borrower) for the Promisee (Creditor).
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2. There are three parties in a cheque:
Drawer, Drawee, Payee.
There are only two parties in Promissory
Note: Promissor (Maker), Promisee
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3. Cheque has 6 months maturity time
period.
(Payee).
The maturity period of the note is the I
date specified on the note.
4. Cheque is an unconditional order, always Promissory Note is an undertaking to pay
on demand or at the time specified.
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payable on demand.

5. Cheque can be crossed. Promissory note cannot be crossed. I

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6. Endorsement is possible in cheque. Promissory note cannot be endorsed
further.

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Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711
 CLASS – XII Page | 3
BANKING promissory note By: Muhammad Hassan

DETAILED ANSWERED QUESTIONS F

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Q1. Define Promissory Note, its essentials, parties and types.

Definition:
Section 4 of the Negotiable Instruments Act 1881, defines promissory note as under:
T
“Promissory note is 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 at a fixed
or determinable future time, a certain sum of money only, to, or to the order of a certain I
person, or to the bearer of the instrument.”

Essentials of a Promissory Note: M

According to Section 4 of the Negotiable Instruments Act 1881, the following are the
essentials of promissory note:
 It must be an unconditional written promise.
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 It must be signed by the maker called promisor.
 It must contain a promise to pay a certain sum of money only.
 The money should be payable to or to the order of a certain person or to the bearer of

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the promissory note.
 It may be two or more persons, and they may be liable thereon jointly and severely.
 The amount promised in the promissory note must be payable on demand or at a fixed
or a determinable future time.
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Parties to a Promissory Note:
There are two parties to a promissory note. They are as follows:
1. Drawer / Maker:
It is the person who owes money. He is a debtor. He makes the promise to pay off the
borrowed money.
2. Payee:
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It is the party to whom the promise is made. He is the creditor.

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Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711
 CLASS – XII Page | 4
BANKING promissory note By: Muhammad Hassan

Kinds of Promissory
The promissory note may be of the following kinds: F
Kinds by Time:
Under this category, the promissory note can be further subdivided: A
1. Sight Promissory Note:
This is the note which becomes payable on sight.
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2. Usance or Time Promissory Note:
This type of promissory note is made for a definite period of time.
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Kinds by Liability
Again it can be further subdivided into:
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1. Single Promissory Note:
Where the promisor (maker) is only one person and makes only himself liable to pay off the
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sum such a note is known as single promissory note.
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2. Joint Promissory Note:
Where there are two or more promisors or makers of the note, such written promise is known
as a joint promissory note. In it two or more persons are jointly or individually liable to pay A
off the borrowed sum.
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Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711
 CLASS – XII Page | 5
BANKING promissory note By: Muhammad Hassan

MULTIPLE CHOICE QUESTIONS

1. The holder of a promissory note is the:
a. Drawer b. Advocate
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c. Payee d. Government
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2. This is a non-negotiable credit instrument:
a. Promissory Note
c. Cheque
b. Letter of Credit
d. Bill of exchange T
3. Credit instruments include:
a. Bill of exchange b. Cheque I
c. Promissory Note d. All of these

4. Three grace days are allowed in case of both . M

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a. Bill of exchange & Cheque b. Bill and Promissory Note
c. Bill and promissory note d. letter of credit & Cheque

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5. I.O.U. stands for:
a. I owe you b. I order you
c. I offer you d. None of these

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ANSWER KEY
1 2 3 4 5
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C A D B A

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PAST PAPERS
Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711
 CLASS – XII Page | 6
BANKING promissory note By: Muhammad Hassan

S.No. Topic/Question Year

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1 N/A 2019
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2 Differentiate between Bill of Exchange and Promissory note. (Short Q.) 2018
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Give three differences between Cheque and Promissory note. (Short Q.)
3 2017

4 N/A 2016 I
5 N/A 2015
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N/A 2014
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Reg.

2014
7 N/A
Pvt.

8 N/A 2013 C
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9 N/A 2012
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2011
10 N/A
Reg.

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Distinguish between the promissory note and cheque. (Short Q.)
2010 E
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Address: Near Numaish، 174 Britto Rd, Soldier Bazaar Contact No: 021-32253713, 32221710 & 32221711