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 – [email protected]

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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.


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


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


• 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.


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


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


• 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.


• 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.


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

Education

Promissory notes - Legal Environment of Business