A)

Definition of a Promissory Note 

A promissory note is defined under Section 83 of the Bills of Exchange Act, 1961 (Act 55) of Ghana as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person or to bearer.

In practical terms, promissory notes are commonly used in Ghanaian banking for short-term financing, such as in trade finance or personal loans. For instance, a borrower might issue a promissory note to a bank like Ecobank Ghana as evidence of debt, ensuring compliance with BoG’s lending guidelines to mitigate credit risk. This instrument facilitates smooth transactions by providing a clear, enforceable promise without the need for a third-party drawee, enhancing efficiency in day-to-day operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                B) 

Differences between a Promissory Note and a Bill of Exchange 

The key differences between a promissory note and a bill of exchange, as governed by the Bills of Exchange Act, 1961 (Act 55), are outlined below. These distinctions are crucial in banking practice, as they affect how instruments are negotiated, enforced, and used in transactions, such as in international trade where bills of exchange are preferred for their tripartite structure.

• Nature of the Instrument: A promissory note is an unconditional promise to pay made by the maker to the payee. In contrast, a bill of exchange is an unconditional order to pay, directed by the drawer to the drawee to pay the payee.
• Number of Parties Involved: A promissory note involves two primary parties: the maker (who promises to pay) and the payee (to whom payment is promised). A bill of exchange involves three parties: the drawer (who issues the order), the drawee (who is ordered to pay), and the payee (who receives payment). This tripartite structure in bills allows for acceptance by the drawee, which is absent in promissory notes.
• Liability: In a promissory note, the maker is primarily liable as they directly promise payment. In a bill of exchange, the drawee becomes primarily liable only upon acceptance; otherwise, the drawer holds secondary liability. This impacts risk assessment in banking; for example, during the 2017-2019 banking cleanup in Ghana, banks like GCB Bank scrutinized bills for proper acceptance to avoid losses from unaccepted instruments.
• Presentment for Acceptance: Promissory notes do not require presentment for acceptance, as there is no drawee. Bills of exchange often require presentment for acceptance, especially if payable after sight, to fix the maturity date and establish the drawee’s liability.
• Notice of Dishonor: For promissory notes, notice of dishonor must be given to prior endorsers but not to the maker. For bills of exchange, notice must be given to the drawer and endorsers if dishonored by non-acceptance or non-payment. In practice, failure to give timely notice, as per BoG’s operational risk standards aligned with Basel II, could expose banks to legal challenges in recovery processes.
• Grace Days: Both instruments allow three days of grace for payment unless specified otherwise, but this applies differently; promissory notes are simpler in computation without the acceptance step.
• Usage in Banking: Promissory notes are typically used for direct loans or IOUs, while bills of exchange are used in trade financing, such as letters of credit. Post-DDEP recovery in 2023-2024, Ghanaian banks like Stanbic Bank have increasingly relied on bills for export financing to ensure better liquidity management.
• Crossing: Crossing applies mainly to cheques (a type of bill), but general bills and promissory notes can be negotiated similarly; however, promissory notes are less commonly crossed.

These differences ensure banks choose the appropriate instrument for compliance and profitability, avoiding issues seen in historical collapses like UT Bank due to poor instrument management.                                                                                                                                                                                                                                                                                                                                                               C)

Four Requirements of a Valid Endorsement 

A valid endorsement, as per Sections 31-35 of the Bills of Exchange Act, 1961 (Act 55), transfers the rights in a negotiable instrument. In Ghanaian banking, invalid endorsements can lead to disputes, emphasizing the need for compliance in daily operations like cheque processing.

• In Writing and Signed: The endorsement must be written on the instrument (or an attached allonge) and signed by the endorser or their authorized agent.
• Intention to Transfer: It must clearly indicate the intention to transfer rights to the endorsee, such as “Pay to X” for a special endorsement.
• Regular and Complete: The endorsement must be regular, matching the payee’s name exactly, and complete without conditions unless it’s a conditional endorsement.
• On the Back or Allonge: Typically placed on the back of the instrument; if space is insufficient, on an attached paper (allonge).

For example, in Access Bank Ghana’s routine cheque handling, ensuring valid endorsements prevents tort claims of conversion and aligns with BoG’s Corporate Governance Directive 2018.                                                                                                                                                                                                                                                                                                                                                                                 D)

Promises and Admissions Made by the Endorser 

When endorsing a bill of exchange, the endorser makes implied warranties and admissions under Section 53 of the Bills of Exchange Act, 1961 (Act 55). These protect subsequent holders and are vital for trust in negotiable instruments within Ghana’s banking system, especially in fintech integrations under the Payment Systems and Services Act, 2019 (Act 987).

• Validity of the Instrument: The endorser admits that the bill is genuine and valid, not forged or altered.
• Good Title: They promise that they have a good title to the bill and the right to transfer it.
• Capacity of Prior Parties: The endorser warrants that all prior parties had the capacity to contract and that the bill was properly executed.
• No Knowledge of Dishonor: They admit no knowledge of facts that would dishonor the bill, such as prior refusal.
• Liability on Dishonor: If the bill is dishonored, the endorser promises to compensate the holder or subsequent endorsers, subject to notice of dishonor.

In practice, these assurances enable seamless negotiation; breaches could lead to liabilities, as seen in global comparisons like Barclays’ handling of endorsed instruments to mitigate risks.