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Negotiable Instrument Act, 1881

 Q. Define the term ‘Promissory Note’ and explain its characteristics.

Ans:  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 :-

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. 

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