Define a promissory note. Discuss in brief essential characteristics of a promissory note.

Definition of Promissory Note - 

             Negotiable Instrument Act defines promissory note, According to Section 4 of the

Negotiable Instrument Act 1881 “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. In short, it is called "Pronote".  The person who makes the promissory note and
promises to pay is called the maker. The person to whom the payment is to be made is called the
payee.

Types of Promissory Notes

There are two main types of promissory notes which are as under;

 Inland promissory notes

 Foreign promissory notes

1. Inland Promissory Notes

In this kind of promissory note, the maker and the Drawee belong to a same country. The inland
note may be individual or joint note.

2. Foreign Promissory Notes

In foreign promissory notes, the maker and the Drawee belong to different countries and also is
individual or joint note.

Essential Requirement of a Valid Promissory Note: The definition given in Section 4 reveals
certain essential characteristics of a promissory note:

1. It must be in writing: The promissory note should be in writing. An oral to promise to

pay does not become a promissory note. The writing may be in ink or in pencil and it also
implies printing, lithography or other modes of representing words in a visible form.
2. It must contain an express promise to pay: The promissory note must contain an
express promise to pay. A mere acknowledgement of debt is not a promissory note. The
following are valid promissory notes : (a) I promise to pay B or on order Rs. 20,000. (b) I
acknowledge myself to be indebted to B in Rs. 10,000 to be paid on demand for value
received.
3. The promise to pay must be unconditional: The promise to pay contained in the note
should be unconditional. Notes which are payable on a contingency are not negotiable
because it is not sure whether or not they will be paid.
4. It must be signed by the maker: Until the maker of a promissory note affixes his
signatures thereto, the instrument is incomplete and of no effect.
5. The maker must be a certain person: The promissory note should point out with
certainty the person who undertakes to pay.
6. The payee must be certain: The promissory note must point out with certainty the party
who is to receive the money. A promissory note cannot be made,payable to the bearer
(Section 31 of RBI Act). Only the Reserve Bank or the. Central Government can make or
issue a promissory note ‘payable to bearer’.
7. The sum payable must be certain: The amount expressed to be payable by the
instrument must be certain. The following cannot be termed valid promissory notes: (a) I
promise to pay B Rs. 2,500 and-all other sums which maybe due to him. (b) I promise to
pay B Rs. 2,500 and all fines according to rules.’ But the following is a valid promissory
note: I promise to pay B Rs. 3,000 with 1% p.a. interest.’
8. The promise should be to pay money only: The medium of payment in a promissory
note should be money and money only. An agreement to do something in addition to or
other than to pay money cannot be a promissory note.
9. Stamping: A promissory note must be properly stamped in accordance with the
provisions of Indian Stamp Act.
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