“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) “Mr B I.O.U Rs.1,000.”
(d) I promise to pay B Rs. 500 seven days after my marriage with C. (e) I promise to pay B Rs.500/- on 01-10-2005.
(f) “I promise to pay B Rs. 500 and all other sums which shall be due to him.”
(g) “I promise to pay B Rs. 500 first deducting thereout any money which he may owe me.”
The instruments respectively marked (a), (b) and (e) are promissory notes. The instruments respectively marked (c), (d), (f) and (g) are not promissory notes.
The essentials of a valid Promissory note are :-
1. Writing – A Promissory note must be in writing.
2. 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.
3. 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.
4. Promise to pay in terms of money – The instrument must be payable in terms of money and money only.
5. Sum payable to be certain – The amount payable must be certain. Therefore instrument at (f) and (g)
are not valid promissory note.
6. Parties certain – The parties to the instrument must be certain. The person making the payment and the person receiving the payment must be identifiable.
7. Must be signed – The instrument is complete only when it is signed by the maker.
8. 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.
9. Other formalities – Formalities such as date, place, consideration, etc. are usally found in a promissory note.
10. 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.