1) Introduction - Meaning and Definition of Promissory Note -
Negotiable Instrument Act defines promissory note, According to Section 4 of the Negotiable Instrument Act 1881 “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. In short, it is called "Pronote". The person 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.
A signs instruments in the following terms:
(a) “I promise to Pay B or order Rs.500”.
(b) “I acknowledge myself to be indebted to B in Rs.1,000, to be paid on demand, for value received.”
(c) “Mr B I.O.U Rs.1,000.”
(d) “I promise to pay B Rs. 500 and all other sums which shall be due to him.”
(e) “I promise to pay B Rs. 500 first deducting there out any money which he may owe me.”
(f) I promise to pay B Rs. 500 seven days after my marriage with C.
(g) I promise to pay B Rs. 500 on D’s death, provided D leaves me enough to pay that sum.
(h) I promise to pay B Rs. 500 and to deliver to him my black horse on lst January next. The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
2) Essential elements of Promissory Note - Essentials of Valid Promissory Note
A promissory note to be valid and enforceable, the following essential elements are to be satisfied.
(1) The promissory note must be in writing -
The Promissory note must be in Writing. The object of this requirement is to exclude oral engagements to pay from the purview of the Act, mere Verbal engagement to pay is not enough. The Term writing includes printing, typewriting, lithographing etc. Writing may be on any material - paper, account book etc.
(2) Promise to pay -
It must contain an express promise to pay. A mere acknowledgment of indebtedness or implied undertaking by the use of the word 'debt' or 'pronote' is not sufficient
The instrument signed by A are not promissory notes :
(i) “Mr B I.O.U Rs.1,000.”
(ii) “I promise to pay B Rs. 500 and all other sums which shall be due to him.”
(iii) “I promise to pay B Rs. 500 first deducting there out any money which he may owe me.”
(iv) I promise to pay B Rs. 500 seven days after my marriage with C.
(v) I promise to pay B Rs. 500 on D’s death, provided D leaves me enough to pay that sum.
(vi) I promise to pay B Rs. 500 and to deliver to him my black horse on lst January next.
(3) The Promise must be definite (certain) and unconditional :
The promise to pay must be certain/definite and unconditional. If it is uncertain or unconditional, the instrument is invalid.
(4) It must be signed and delivered by the maker :
The promissory note must be signed by the makers, it is incomplete without the signature of its makers. 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 the mind of the signer must accompany the signature.This signature can be made in any part of the document. This may be done even with a pencil. If the maker cannot write his name he may sign by thumb mark.
(5) Certain sum of money -
The sum payable must be certain and must not be capable of Contingent additions or subtractions.
(6) The parties must certain -
Where the maker and the payee cannot be identified with certainty from the instrument itself, the instrument, even if it contains an unconditional promise to pay, is not a promissory note.
(7) Promise to pay Money only -
The payment 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.
(8) It must be stamped according to the provision of the Stamp Act 1940.
3) Capacity to make a Promissory Note -
Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
Minor: A minor may draw, endorse, deliver and negotiate such instruments so as to bind all parties except himself. Nothing herein contained shall be deemed to empower a corporation to make, endorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered.
See Also -
Kinds of Crossing of Cheques
Difference Between Assignment and Negotiation