Define a promissory note. Discuss in brief essential characteristics of a promissory note.
According to Section 4 of the Negotiable Instruments Act a promissory note is an instrument in writing 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 following is the usual form of a promissory note :
Essential Requirement of a Valid Promissory Note: The definition given in Section 4 reveals certain essential characteristics of a promissory note:
- It must be in writing: The promissory note should be in writing. An oral to promise to pay does not become a promissory note. The writing may be in ink or in pencil and it also implies printing, lithography or other modes of representing words in a visible form.
- It must contain an express promise to pay: The promissory note must contain an express promise to pay. A mere acknowledgement of debt is not a promissory note. The following are valid promissory notes : (a) I promise to pay B or on order Rs. 20,000. (b) I acknowledge myself to be indebted to B in Rs. 10,000 to be paid on demand for value received.
- The promise to pay must be unconditional: The promise to pay contained in the note should be unconditional. Notes which are payable on a contingency are not negotiable because it is not sure whether or not they will be paid.
- It must be signed by the maker: Until the maker of a promissory note affixes his signatures thereto, the instrument is incomplete and of no effect.
- The maker must be a certain person: The promissory note should point out with certainty the person who undertakes to pay.
- The payee must be certain: The promissory note must point out with certainty the party who is to receive the money. A promissory note cannot be made,payable to the bearer (Section 31 of RBI Act). Only the Reserve Bank or the. Central Government can make or issue a promissory note ‘payable to bearer’.
- The sum payable must be certain: The amount expressed to be payable by the instrument must be certain. The following cannot be termed valid promissory notes: (a) I promise to pay B Rs. 2,500 and-all other sums which maybe due to him. (b) I promise to pay B Rs. 2,500 and all fines according to rules.’ But the following is a valid promissory note: I promise to pay B Rs. 3,000 with 1% p.a. interest.’
- The promise should be to pay money only: The medium of payment in a promissory note should be money and money only. An agreement to do something in addition to or other than to pay money cannot be a promissory note.
- Stamping: A promissory note must be properly stamped in accordance with the provisions of Indian Stamp Act.