(a) Promissory Note: A promissory note is an instrument (not being a bank note or a currency – note ) 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 ( Section 4).
In other words, the requirements of promissory note are as follows:
(i) It must be in writing: This means that the engagement
cannot be oral. There is no prescribed form of language for this; even the word ‘promise’ need not be used. What is necessary is that whatever language is used, it must clearly show that the maker is unconditionally bound to pay the sum.
(ii) The promise to pay must be unconditional: If a condition is attached to the ‘promise to pay’ then the instrument will not be construed as a promissory note. Suppose, A signs an instrument made out as follows, “I promise to pay to B Rs. 500 on D’s death, provided D leaves me enough to pay the sum”. The instrument will not be a promissory note. Similarly, if A signs thus, “I promise to pay to B Rs. 500 deducting any money which B may owe me;” such an instrument also will not be a promissory note. Let us now take a converse case. An instrument runs thus: “I acknowledge myself to be indebted to B of Rs. 500 to be paid on demand, for value received”. Thus instrument would be a promissory note.
It may be noted that a promise to pay will not be conditional under Section 4, where it depends upon an event which is certain to happen but the time of its occurrence may be ‘uncertain. For example, where a promissory note is in this form: “I promise to pay to A Rs. 2,000, 15 days after the death of B”, it is not conditional as it is certain that B will die though the exact time of his death is uncertain (Section 4).
(iii) The amount promised must be a certain and a definite sum of money: Certainty is one of the essential characteristics of a promissory note. Certainty must be as to the amount and also as to the person by whose order and to whom payment is to be made. Uncertainty in such matters has a tendency to restrict credit and to hamper commerce. Hence the necessity of certainty. For example, where an instrument contains: “I promise to pay Rs. 350 and all other sums which shall be due”, it is not a valid promissory note as the sum is not certain within the meaning of Section 4.
You should also note that payment with interest of at a specified rate of exchange is certain within the meaning of Section 4. You should also remember that in the event of figures and words indicating the sum payable being contradictory; the sum in words must be taken into account.
(iv) The instrument must be signed by the maker: It is incomplete till it is so signed. Since the signature is intended to authenticate the instrument it can be on any part of the instrument.
(v) 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.
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 undated instrument will be treated as having been made on the date of its delivery; and (d) an antedated or post dated instrument is not invalid.
N.B. The words “ or to the bearer of the instrument” still appear in Section 4 to the Act. since these have not yet been deleted there from by the Parliament: Nevertheless, in view of the provision contained in Sub-section (2) of Section 31 of the Reserve Bank of India or the Central Government can make or issue a promissory note payable to the bearer of the instrument.
In other words, the requirements of promissory note are as follows:
(i) It must be in writing: This means that the engagement
cannot be oral. There is no prescribed form of language for this; even the word ‘promise’ need not be used. What is necessary is that whatever language is used, it must clearly show that the maker is unconditionally bound to pay the sum.
(ii) The promise to pay must be unconditional: If a condition is attached to the ‘promise to pay’ then the instrument will not be construed as a promissory note. Suppose, A signs an instrument made out as follows, “I promise to pay to B Rs. 500 on D’s death, provided D leaves me enough to pay the sum”. The instrument will not be a promissory note. Similarly, if A signs thus, “I promise to pay to B Rs. 500 deducting any money which B may owe me;” such an instrument also will not be a promissory note. Let us now take a converse case. An instrument runs thus: “I acknowledge myself to be indebted to B of Rs. 500 to be paid on demand, for value received”. Thus instrument would be a promissory note.
It may be noted that a promise to pay will not be conditional under Section 4, where it depends upon an event which is certain to happen but the time of its occurrence may be ‘uncertain. For example, where a promissory note is in this form: “I promise to pay to A Rs. 2,000, 15 days after the death of B”, it is not conditional as it is certain that B will die though the exact time of his death is uncertain (Section 4).
(iii) The amount promised must be a certain and a definite sum of money: Certainty is one of the essential characteristics of a promissory note. Certainty must be as to the amount and also as to the person by whose order and to whom payment is to be made. Uncertainty in such matters has a tendency to restrict credit and to hamper commerce. Hence the necessity of certainty. For example, where an instrument contains: “I promise to pay Rs. 350 and all other sums which shall be due”, it is not a valid promissory note as the sum is not certain within the meaning of Section 4.
You should also note that payment with interest of at a specified rate of exchange is certain within the meaning of Section 4. You should also remember that in the event of figures and words indicating the sum payable being contradictory; the sum in words must be taken into account.
(iv) The instrument must be signed by the maker: It is incomplete till it is so signed. Since the signature is intended to authenticate the instrument it can be on any part of the instrument.
(v) 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.
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 undated instrument will be treated as having been made on the date of its delivery; and (d) an antedated or post dated instrument is not invalid.
N.B. The words “ or to the bearer of the instrument” still appear in Section 4 to the Act. since these have not yet been deleted there from by the Parliament: Nevertheless, in view of the provision contained in Sub-section (2) of Section 31 of the Reserve Bank of India or the Central Government can make or issue a promissory note payable to the bearer of the instrument.
What are the essentials of Promissory Notes?
![What are the essentials of Promissory Notes?]()
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