[Illustration: Ordinary form of promissory note.]
A PROMISSORY NOTE is a written promise to pay a specified sum of
money. At the time of the note's issue--that is, when signed and
delivered--two parties are connected with it, the _maker_ and the
_payee_. The maker is the person who signs or promises to pay the
note; the payee is the person to whom or to whose order the note is
made payable. NEGOTIABLE in a commercial sense means _transferable_,
and a negotiable note is a note which can be transferred from one
person to another. A note to be made negotiable must contain the word
_bearer_ or the word _order_--that is, it must be payable either _to
bearer_, or _to the order_ of the payee. A NON-NEGOTIABLE note is
payable to a particular person _only_. A note may be written on any
kind of paper, in ink or pencil. It is wise, however, to use ink to
prevent changes. All stationers sell blank forms for notes which are
easily filled in.
The samples of notes which appear in this lesson are selected simply
to illustrate to students the fact that there are a great many special
forms of notes in common use. The wording differs slightly in
different States.
The DATE of a note is a matter of the first importance. Some bankers
and business men consider it better to draw notes payable at a certain
fixed time, as, "_I promise to pay on the 10th of March, 1897_." The
common custom is to make notes payable a certain number of days or
months after date. A note made or issued on Sunday is void. The DAY OF
MATURITY is the day upon which a note becomes legally due. In several
of the States a note is not legally due until three days, called DAYS
OF GRACE, after the expiration of the time specified in the note.
[Illustration: A promissory note filled out on an engraved blank.]
The words VALUE RECEIVED, which usually appear upon notes, are not
necessary legally. Thousands of good notes made without any value
consideration are handled daily.
The PROMISE TO PAY of a negotiable note must be unconditional. It
cannot be made to depend upon any contingency whatever.
Notes that are made in settlement of genuine business transactions
come under the head of regular, legitimate business paper. An
ACCOMMODATION note is one which is signed, or indorsed, simply as an
accommodation, and not in settlement of an account or in payment of an
indebtedness. With banks accommodation paper has a deservedly hard
reputation. However, there are all grades and shades of accommodation
paper, though it represents no actual business transaction between the
parties to it, and rests upon no other foundation than that of mutual
agreement. No contract is good without a consideration, but this is
only true between the original parties to a note. The third party or
innocent receiver or holder of a note has a good title, and can
recover its value, even though it was originally given without a
valuable consideration. An innocent holder of a note which had been
originally lost or stolen has a good title to it if he received it for
value.
[Illustration: A special form for a promissory note.]
A note does not draw interest until after maturity, unless the words
WITH INTEREST appear on the face. Notes draw interest after maturity
and until paid, at the legal rate.
A note should be presented for payment upon the exact day of maturity.
Notes made payable at a bank, or at any other place, must be presented
for payment at the place named. When no place is specified the note is
payable at the maker's place of business or at his residence.
In finding the date of maturity it is important to remember that when
a note is drawn _days after date_ the actual days must be counted, and
when drawn _months after date_ the time is reckoned by months.
To DISCOUNT a note is to sell it at a discount. The rates of discount
vary according to the security offered, or the character of the loan,
or the state of the money market. For ordinary commercial paper the
rates run from four to eight per cent. Notes received and given by
commercial houses and discounted by banks are not usually for a longer
period than four months.