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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