Definition Of Promissory Note

A promissory note is defined as an unconditional promise, in writing, signed by the maker, to pay, in the United States, at a fixed or determinable future time, a sum certain in dollars to order or to bearer.

Classes Of Notes Eligible

General Statutory ProvisiOns

Commercial paper; definition of eligible notes. - Eligible notes arc-defined in the law as follows: Notes, drafts and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used or are to be used for such purposes. The Federal Reserve Board has the right to determine or define the character of the paper thus eligible for rediscount.

Agricultural And Commodity Paper

Notes, drafts and bills of exchange secured by staple agricultural products, or other goods, wares, or merchandise, are eligible for rediscount.

Paper Based On United States Obligations

Notes, drafts, or bills issued or drawn for the purpose of carrying on trading in bonds and notes of the government of the United States are included in the classes of promissory notes eligible for rediscount.

Regulations Of The Federal Reserve Board

Relating to Eligible Classes of Promissory Notes

Definition Of Commercial Paper Eligible For Rediscount

The Federal Reserve Board, exercising its statutory right to define the character of a note, draft, or bill of exchange eligible for rediscount at a Federal Reserve bank, has determined that it must be a note, draft, or bill of exchange, the proceeds of which have been used or are to be used in producing, purchasing, carrying or marketing goods, wares, or merchandise in one or more of the steps of the process of production, manufacture or distribution. The paper may be secured by the pledge of goods or collateral provided it is otherwise eligible.

Opinions Of Counsel And Rulings

Relating to Eligible Classes of Promissory Notes

Loans To Individuals

Federal Reserve banks do not make loans directly to individuals, but rediscount the paper of member banks which include all national banks and such State banks which may have joined the Federal Reserve System.

Notes Based on Production and Distribution of Goods

Paper Of Waterworks Company

The ninety day paper of a waterworks company, the proceeds of which have been used, or are to be used to provide funds for pay-roll, purchases of coal, etc., is eligible for rediscount by a Federal Reserve bank if the paper otherwise conforms to the law and the provisions of the Board's regulations.

Notes Of Farmers

Farmers' notes, the proceeds of which are to be used for tilling farms or for draining land already in use as farm land, should be classified as agricultural paper and are eligible for rediscount.

Assignment Of Open Accounts Ineligible

The assignment of an open account is not negotiable paper and is therefore not eligible for rediscount by a Federal Reserve bank.