Page 87 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Where A signs instruments in the following terms: (i) “I promise to pay B or order ` 500.”
(ii) “I acknowledge myself to be indebted to B in ` 1000, to be paid on demand, for value
received.”
But, the following are NOT promissory notes: (i) “Mr B, I.O.U. (I owe you) ` 1000.” (ii) “I am
liable to pay you ` 500”. (iii) “I promise to pay B ` 500 and all other sums which shall be due to
him.” (iv) “I promise to pay B ` 500, first deducting thereout any money which he may owe me.”
(v) “I promise to pay B ` 1500 on D’s death, provided he leaves me enough to pay that sum.” (vi)
“I promise to pay B ` 500 seven days after my marriage with C.” (vii) “I promise to pay B ` 500
and to deliver to him my white Maruti Car 1 January next.”

Essentials of a Promissory Note

From the definition, it is clear that a promissory note must have the following essential elements:

1. A promissory must be in writing. Writing includes print and typewriting.
2. It must contain an undertaking or promise to pay. Thus, a mere acknowledgment of
indebtedness is not sufficient. Also, a receipt for money, if it does not contain an express
promise to pay is not a promissory note. But if the receipt is coupled with a promise to
pay, it shall be promissory note.

Example: “We have received a sum of ` 9,000 from Shri R.R. Sharma. This amount will
be repaid on demand. We have received this amount in cash.” This is a promissory note.
However, note that the use of the word ‘I promise’ is not essential to constitute an instrument
as a ‘promissory note’.

3. The promise to pay must not be conditional. Thus, instruments payable on performance
or non-performance of a particular act or on the happening or non-happening of an event
are not promissory notes.

Examples:
(a) A promises to pay B ` 500 provided C leaves sufficient money in favour of A after
C’s death. It is not a promissory note.

(b) A promises to pay B ` 5000 seven days after his marriage with C. It is not a promissory
note.
However, the promise to pay may be subject to a condition which according to the ordinary
experience of mankind is bound to happen, e.g., death. Thus, where A promises to pay B a
sum of ` 10,000 on the death of C, the promise is a valid promise for it is certain that C shall
die.
4. The promissory note must be signed by the maker, otherwise it is of no effect. Even if it is
written by the maker himself and his name appears in the body of the instrument, it shall
not constitute a valid promissory note, if it is not signed by the maker. ‘Signature’ means
the writing of a person’s name in order to authenticate the contract contained in the
instrument. Signature by an authorised attorney (agent) shall be valid.
5. The instrument must point out with certainty the maker and the payee of the promissory
note, e.g., son of……. resident of……, etc. The identification of payee by description does
not invalidate the promissory note. For example, the note drawn payable to the ‘General
Manager of HDFC Ltd.’

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