promissory note

Submitted by:

rajat sharma

negotiable instrument

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.

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.”

Format of promissory note

promissory note>

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

Essential of promissory note

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

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.

3 > Promise to pay must beunconditionalA 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.”

4 > It should be signed by the maker

> 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.

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. 

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.

7 > it must be stamped according to the provisions of the stamp act, 1940

 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.

> 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 instru ment is

not invalid.

What is cheque

Bill of exchange

Difference between bill of exchange , cheque and promissory note

the end