Short essay on Promissory Note

A promissory note has been defined by Sec. 4 of the Act as follows: 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 person making the promise to pay is called the “maker” and the person to whom the payment is to be made is called the “payee”. Arun is the maker and Vijay is the payee.

Examples:

A signs instruments in the following terms: “I promise to pay B or order Rs. 500”

“I acknowledge myself to be indebted to B in Rs. 1,000 to be paid on demand, for value received,”

“Mr. B, I.O.U. Rs. 1,000 (I.O.U. means, I owe you).

“I promise to pay B Rs. 500 and all other sums which shall be due to him,”

“I promise to pay B Rs. 500, first deducting there out any money which he may owe me,”

Of all the above instruments only (a) are promissory notes and the rest are not promissory notes, for reasons why these are not called promissory notes, see the essential elements discussed below.

Essentials of Valid Promissory Note:

1. It must be in writing:

A promissory note must be in writing. An oral promise cannot become a promissory note. It may be handwritten, typed or printed. It also includes writings in pencil.

2. An express promise to pay:

There must be an express promise to pay. It cannot be implied. A mere acknowledgement of a debt is not sufficient. For example, a promissory note, “I am indebted to pay B Rs. 500”, is not a promissory note because there is not an express promise to pay but only an acknowledgement of debt.

It should be noted that the use of the word ‘promise’ is not necessary. However, there must be clear intention to show an unconditional undertaking to pay.

Example:

“I am my own free will and accord approached A and borrowed from him the sum of Rs. 100 bearing interest at the rate of 50 paise per cent per annum. I have, therefore, executed these few presents by way of a promissory note so that it may serve as evidence and be of use when needed,” Held, it is not a promissory note as there is no express undertaking to pay the amount mentioned in the instrument [Bal Mukund v. Munna Lai Ramji Lai].

Again a receipt for money, even if coupled with promise to pay vis not a promissoiy note [Akbar Khan v. Attar Singh].

3. Promise must be certain and unconditional:

The promise to be valid must not be uncertain or conditional, otherwise the instrument will be invalid.

Examples:

(a) “I promise to pay B Rs. 500 when I am able to pay.”

(b) “I promise to pay B Rs. 500 on my marriage with C,”

However, a promise to pay which is conditional on the happening of an event which must happiness not conditional within the meaning of Sec. 4, For example:

(i) Promise to pay at a specified time;

(ii) Promise to pay at a specified place;

(iii) Promise to pay after the happening of an event which is certain to happen, may be uncertain. For example, a promise to pay on the death of a certain person is not regarded conditional within the meaning of Sec. 4.

4. The instrument must be signed by the maker:

The instrument be signed by the maker even if it has been written by the promisor himself in his own handwriting. The law is not very particular about the place or form of signature. The signature may be done at any place, even at the top or at the back of the instrument. It is not necessary that the signature should be done at the bottom. The signature may be in full or mere initials. It may be in pencil or ink.

Even a rubber stamp or facsimile may be used for the signature. The only thing is that it should prima facie show the intention of the maker to sign the instrument. In case the maker of the promote is illiterate, his thumb impression is sufficient.

5. The amount of the instrument must be certain:

The amount to be paid must be certain, otherwise the instrument will be invalid. For example, A promises to pay B Rs. 500 and all other sums which become¹ due. This is not a valid promissory note because the sum is not certain as nobody knows what other sums will become due in the above case.

However, a promise to pay money with interest is valid. If the rate of interest is not given, it will not be valid. For example, A’s promise to pay B Rs. 500 with interest, is not valid.

6. Promise to pay must be in legal tender money:

The promise to pay must be in legal tender money of India. It will be invalid if it is payable in foreign money or in goods.

Examples:

(a) A promises to pay to B 500 at Mumbai. It is not a valid promissory note A promises to pay B Rs. 500 and a suit. It is

7. Bank note or currency note is not a promissory note:

They have been expressly excluded from the definition as they are treated at par with money. In other words, a bank note or a currency note is money itself.

8. The parties must be certain:

The person making the promise, i.e., the person by whom the payment is to be made and the person to whom the payment is to be made must be certain. They may be named or their designations may be given. The maker may be a single person or may be more than one person. In case there are two or more persons, they will bind themselves jointly and severally or jointly but not alternatively.

A promissory note payable to the maker himself is not valid promissory note, however, if it is endorsed by him, it becomes a bearer instrument and is valid.

9. Miscellaneous formalities:

Promissory note must be stamped according to the Indian Stamp Act, otherwise it will be inadmissible in evidence. However, other formalities like place of making the instrument, date or the words, “value received” are not necessary in law. In practice, however, these formalities are usually complied with. The date of the instrument can be proved independently.

Form of Promissory Note :

The law has not given any specific from of a promissory note. As such it may be in any form but it must satisfy all the essential conditions mentioned above.