Promissory notes - Legal Environment of Business

Promissory NotesLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Definition

• A promissory note is aninstrument in writingcontaining anunconditional undertakingsigned by the maker, topay a certain sum ofmoney only to or to theorder of a certain personor to the bearer of theinstrument.

Definition

• The person who makesthe promissory note andpromises to pay is calledthe maker. The person towhom the payment is tobe made is called payee.

Example

• I acknowledge myself to

be indebted to A in Rs 500

to be paid on demand for

values received.

Essentials of a promissory note

1. In writing.

2. Promise to pay must be express.

3. Definite and unconditional.

4. To be signed by the maker.

5. Certain in the case of parties.

6. Certainty in the case of sum of

money.

7. Promise to pay money only.

8. Formalities are not necessary.

Essentials of a promissory note

• In writing – Promissory notemust be writing. Writingmay include print, typewriting, writing in pencil orwriting in ink. Writingincludes photographing andlithographing.

Essentials of a promissory note

• Promise to pay must beexpress – It must contain anexpress undertaking orpromise to pay. A mereacknowledgement is notenough.

Essentials of a promissory note

• Definite and unconditional –The promise to may must bedefinite and unconditional. Apromise to pay inunconditional if it depends onan event which is certain tohappen or if it is to pay at aparticular place or at aspecified time.– Example – A promise to pay asum of Rs 1000 two days afterthe death of C.

Essentials of a promissory note

• To be signed by the maker –The promissory note mustbe signed by the makerotherwise it is incomplete.

Essentials of a promissory note

• Certain in the case ofparties – The instrumentmust point out withcertainty as to who is themaker and who is the payer.

Essentials of a promissory note

• Certainty in the case of sumof money – The sumexpressed to be payable bythe promissory note mustbe certain and must becapable of contingentadditions or subtractions.

– Example – “I promise to payA Rs 500 and all other sumpayable” – Sum of money isnot certain.

Essentials of a promissory note

• Promise to pay money only– The payment must be inthe legal tender money ofIndia.

– Example – “I promise to payA Rs 500 and a quintal ofrice” – Only money isacceptable.

Essentials of a promissory note

• Formalities are notnecessary – Formalities likenumber, date, place,consideration etc areusually found in aninstrument even thoughthey are not essential inlaw.