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Question

Difficulty: MediumForms and Instruments of Credit

A merchant receives a written, unconditional promise signed by a debtor, undertaking to pay a specified sum of money on demand or at a fixed future date to a named payee. Which instrument of credit does this document represent?

  1. A
    Bill of Exchange
  2. Promissory NoteAnswer
  3. C
    Letter of Credit
  4. D
    Credit Note

Answer

Promissory Note
A promissory note is defined legally as an unconditional promise in writing, made and signed by the debtor (maker), promising to pay on demand or at a fixed or determinable future time a sum certain in money to a specified person or bearer.

Step-by-Step Solution

1
Analyze the core features described in the document.
The document is an unconditional promise written and signed directly by the debtor to pay a specified sum.
Identifying who initiates the instrument (debtor vs creditor) and the nature of the obligation (promise vs order) determines the specific credit instrument.
2
Distinguish between an order to pay and a promise to pay.
An unconditional promise to pay issued by the debtor is a Promissory Note, whereas an unconditional order to pay issued by a creditor is a Bill of Exchange.
Understanding key legal definitions under commercial credit instruments ensures accurate classification.

Key Concept

Forms and Instruments of Credit
Estimated Time:1m 0s
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Topics

Forms and Instruments of Credit

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