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Thursday, July 19, 2012

Promissory Note

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..” [Section 4]

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) “I promise to pay B Rs.500/- on 01-10-2005. etc are promissory notes”.

The essentials of a valid Promissory note are :-
a.       Writing: A Promissory note must be in writing.
b.      Express promise to Pay: The promissory note must contain an express promise to pay. A mere implied promise to pay or an acknowledgement of debt is not a promissory note. Therefore illustrations at (c) is not a Promissory note.
c.       Promise to pay unconditional: The promise to pay an amount must be unconditional. However, a Promissory note conditional on an event bound to happen is a valid promissory note. Therefore illustrations at (d) is not a valid Promissory note while (e) is a valid Promissory note.
d.      Promise to pay in terms of money: The instrument must be payable in terms of money and money only.
e.      Sum payable to be certain: The amount payable must be certain. Therefore instrument at (f) and (g) are not valid promissory note.
f.        Parties certain: The parties to the instrument must be certain. The person making the payment and the person receiving the payment must be identifiable.
g.       Must be signed: The instrument is complete only when it is signed by the maker.
h.      Must bear the stamp: A promissory note must be properly stamped in accordance with the Indian Stamp Act, 1899 and must also be properly cancelled.
i.         Other formalities: Formalities such as date, place, consideration, etc. are usally found in a promissory note.
j.        Requisites of a contract to be complied with: All requisites of a valid contract like capacity to contract, consideration, free consent, lawful object must be present.

Rs.1,000                                                                                                                                        Mumbai, July 2, 2005
Three months after date I promise to pay Shyam Sunder or order the sum of one thousand rupees, for value received.

To,
Shyam Sunder
222, D.N.Nagar,
Andheri(W), Mumbai – 400 053.