The Negotiable Instruments Act, 1881 recognizes three kinds of negotiable instruments. Promissory notes are one of them. Under these notes, one person basically promises to pay a sum of money to another. They are one of the most common negotiable instruments in use these days. In this article, we’ll see the meaning of promissory notes.
Promissory Notes Meaning
Section 4 of the Negotiable Instruments Act defines promissory notes. The definition says promissory notes are basically instruments in writing. They are, however, neither bank notes nor currency notes which also contain this feature.
The next important aspect of promissory notes meaning is that they are unconditional undertakings. The maker of these notes agrees to pay a certain sum either to a particular person or their bearers. This maker undertakes his responsibility to pay by affixing his signature on the notes.
Browse more Topics under Negotiable Instruments Act
- Definition of Negotiable Instrument
- Classification of Negotiable Instruments
- Bills of Exchange
- Parties of a Cheque and Essentials
- Crossing and Types of Cheque Crossing
- Liability of Parties – Cheque
- Endorsement of Instruments
- Presentment for Acceptance
- Notice of Dishonor
- NEFT and RTGS
Parties to Promissory Notes
Every promissory note always comprises of three important parties. These include the maker, the payee as well as the holder. Even endorsers and endorsees can be parties in certain cases.
1) The maker: This is basically the person who makes or executes a promissory note and pays the amount therein.
2) The payee: The person to whom a note is payable is the payee.
3) The holder: A holder is basically the person who holds the notes. He may be either the payee or some other person.
Essential Elements of a Promissory Note
A typical promissory note contains several features that separate it from other negotiable instruments. The following are a few such distinct elements:
a) Written notes
A promissory note must always be in writing. It can never be an oral contractual promise to pay money. This is a legal as well as a customary requirement of such instruments.
b) Express undertaking
The undertaking that forms the base of a promissory note must generally be express. Thus, merely inferring an acknowledgement to pay and calling it a promissory note is not enough. For example, A writing “I owe B Rs. 1,000” does not amount to such notes.
c) Unconditional promise
The promise to pay a certain amount of money must be unconditional in all cases. Hence, a conditional promise cannot form the basis of such notes. For example, one cannot promise to pay money only if he has it, as that amounts to a condition.
However, promising to pay on a specific date or upon the happening of an inevitable event is fine. For example, A can promise to pay B three years from the date of the note’s execution.
d) Specific amount
Every promissory note must mention a specific and precise amount. There can be neither additions nor subtractions to them. For example, A cannot make a note promising to pay to B any future amount that is not specific.
e) Legal tender
The money payable under a note must always be expressible in legal tenders like Rupees or Dollars. Hence, a maker of a note cannot promise to pay the payee with bags of grains.
Apart from these elements, a typical promissory note has other important requires as well. For example, the maker has to stamp the notes according to the Indian Stamp Act. Furthermore, the makers, payees and endorsees should be specific persons.
Solved examples on Promissory Notes
Question: Mention the missing word(s) in the following sentences.
(1) The parties to promissory notes include makers, __________ and __________.
(2) An undertaking to pay money on a specific future date is an __________ promise.
(3) A promissory note must always be in __________ and not oral.
Answers: (1) payees, holders (2) unconditional (3) writing