Definition of Promissory Note:
A ‘promissory note’ is an instrument in writing (not being a bank note or a currency note), containing an unconditional undertaking signed by the 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”.
The parson Who makes the promissory note and promises to pay is called the maker. The person to whom the payment is to be made is called the payee.
Essential Characteristics of a Promissory Note
1. It is an Instrument in Writing: A mare verbal promise to pay is not a promissory note. The promise should be in writing. The writing may be in ink or pencil,or printing,or lithographing. It may be in any form,it will be a promissory note so long as it satisfies the other requirements of Section 4. In other words,an oral promise does not make a promissory note since it is not an instrument.
2. It is a promise to pay: There must be an express undertaking or promise to pay. A mere acknowledgement of indebtedness or implied undertaking by the use of the word ‘debt’ or ‘pronote’ is not sufficient and it does not constitute a promissory note.
3. Signed by the Maker: The instrument must be signed by the maker., otherwise it is incomplete and of no effect. Even if it is written by the maker himself and his name appears in the body of the instrument,his signature must be there. Signature means the writing of a person’s name in order to authenticate and give effect to the contract contained in the instrument. It is,at the same time,essential that mind of the signer must accompany the signature.
4. Other formalities: The other formalities regarding number,place,date,consideration,etc.,through usually found given in the promissory notes but are not essential in law.
5. Definite and Unconditional Promise: The promise must be definite and unconditional. It may be noted that a promise to pay is not conditional if it depends upon an event which is certain to happen but the time of its occurrence may be uncertain.
6. Promise to pay Money Only: The payment to be made under the Instrument must be in the legal tender money of India. If the instrument contains a promise to pay something other than money or something in addition to money, it cannot be a promissory note.
7. Maker and payee Must be Certain: The instrument itself must indicate with certainly who is the person or are the persons engaging him or themselves to pay.
8. Sum payable must be Certain: For a valid promissory note it is also essential that the sum of money promised to be payable must be certain and definite. The amount payable must not be capable of contingent additional or subtractions.
Parties to a Promissory Note
- Maker: Maker is the person who promises to pay the amount stated in the note. He is the debtor.
- Payee: Payee is the person to whom the amount of the note is payable,i.e., the creditor.
- Holder: He is either the payee or the person to whom the note may have been endorsed.
Specimen of Promissory Note