4. What is promissory note
> A promissory note is an instrument in
writing.
(not being a bank note and a currency
note)
Containing a unconditional undertaking.
Singed by maker.
To pay a certain sum of money.
Only to or to the order of a certain person, or
to the bearer of the instrument.
5. DEFINITION
> Section 4 of the Act defines, “A promissory note is an
instrument in writing (note being a bank-note or a
currency note) containing an unconditional
undertaking, signed by the maker, to pay a certain sum
of money to or to the order of a certain person, or to
the bearer of the instruments.”
8. Parties of a promissory note
> There are primarily two parties involved in a
promissory note. They are:
1} The maker or drawer: A person who makes a note and
promises to pay the amount stated therein.
2} The payee : the person whom the amount is payble
10. 1> It must be in writing
A promissory note must be a writing.
The oral promise to pay does not become a
promissory note.
The writing may be on
any paper or book
11. 2> promissory note is a negotiable instrument
a promissory note may be a negotiable instrument if
it is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to
pay on demand to the payee, or at fixed or
determinable future time, certain in money, to order or
to bearer.
12. 3 > Promise to pay must be
unconditional
A conditional undertaking destroys the negotiable
character of an otherwise negotiable instrument.
Therefore, the promise to pay must not depend upon
the happening of some outside contingency or event.
It must be payable absolutely.
Example= (i) “I Promise to pay B Rs. 1500 first
deducting there out any money which he may
owe me.”
(ii) “I promise to pay B Rs. 1500 on D’s death
provided D leaves me enough to pay this sum.”
13. 4
> The instrument must be signed by the maker of it. A
signature in pencil or by a rubber stamp of facsimile is
good. An illiterate person may use a mark or cross
instead of writing out his name. The signature or mark
may be placed anywhere on the instrument, not
necessarily at the bottom. It may be at the top or at the
back of the instrument.
14. 5> The person to whom the promise is made must be a definite person
The payee must be a certain person. Where the name
of the payee is not mentioned as a party, the
instrument becomes invalid. Remember that a
promissory note cannot be made payable to the maker
himself. Thus, a note, which runs “I promise to pay
myself”, is not a promissory note and hence invalid.
However, it would become valid when it is endorsed by
the maker. This is because it then becomes payable to
bearer, if endorsed in blank, or it becomes payable to
the endorsee or his order, if endorsed specially.
15. 6> The promise should be to pay money and money only:
> Money means legal tender money
and not old and rare coins. A
promise to deliver paddy either in
the alternative or in addition to
money does not constitute a
promissory note.
16. 7 > it must be stamped according to the
provisions
of the stamp act, 1940
17. 8 > Parties Involved :
There are two parties involved in the promissory note,
the maker and the payee. The promissory note may
differ in maturity. Some promissory note mature after
a long period, some after a year or month and some are
payable on demand.
18. > In connection with the promissory note, you should also
remember that:
(a) consideration need not be mentioned
(b) place and date of making it need not the
mentioned
(c) an antedated or post dated instrument is not
invalid.
