Promissory Note (Sec. 4)
“It 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.”
Thus, a ‘promissory note’ contains a promise in writing by a specified person to pay a certain sum of money to a specified person or to his order.
The definition of a promissory note in Sec. 4 is exhaustive and excludes from the category of notes instruments which do not fall within its terms.
An instrument which satisfies the requirements of the definition contained in Sec. 4, must be held to be a promissory note, irrespective of whether it is negotiable or not .
To be a valid promissory note, following requirement are to be satisfied:-
Now lets understand them individually in Detail: -
(1) In Writing and Signed by the Maker
No particular form is prescribed; a promise contamed in a letter will suffice. An oral promise to pay a sum of money is not an instrument. Though it is usual to mention in a note that it is made for “value received”, such a statement is not an essential of the note and its omission will not render the instrument invalid. Similarly, date and place are not the essential requisites of a note.
However, a promissory note should be stamped either before or at the time of its execution (Execution is defined to mean signing or affixing of the signature). An unstamped note is not admissible in evidence and no suit can be mentioned thereon.
(2) Undertaking/Promise to Pay
This promise should be express. For example [Illustrations (a) and (b) to S-4]:
(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.”
Intention is Important
The description of the instrument as a promissory note, the language of instrument taken as a whole, the circumstances under which document came to be executed, the intention of parties manifest from the face of document have all a cumulative bearing on a proper construction of instrument whether it is a promissory note or not (Jetha Parkha v Ramchandra, 16 Bom 689). The primary intention of parties and the real characteristics of document is important. Thus, where an acknowledgement is followed by an undertaking to pay [Illustration (b) to S.4], it is a promissory note.
An acknowledgment of a receipt of the amount does not take away the document from the category of a promissory note. The following instrument was held to be a promissory note: “We have received the sum of Rs. 9240/- from Sh. Ram Rattan Sharma of Thangal Bazar Imphal. The above amount will be repaid on demand. We have received Rs. 9240/- in cash today” (Surjit Singh v Ram Rattan Sharma AIR 1975 Gau 14).
The expression “on demand” is a technical expression. It means that the amount mentioned in the instrument is payable immediately. It does not mean that a demand has to be made before payment can be enforced. Where a note is payable “after demand” or “when demanded” it is not deemed to be payable till an actual demand has been made.
(3) Promise to Pay Must be Unconditional (Certainty of instrument)
Certainty is the great object in negotiable instruments, and unless they carry their own validity on the face of them they are not negotiable. On that ground, notes which are only payable on a contingency/condition are not negotiable, because it does not appear on the face of them whether or not they will ever be paid.
(4) Money and a Certain Sum of Money
It must be a promise to pay money only. An instrument signed by A, saying, “I promise to pay B Rs. 500 and to deliver to him my black horse on 1st Jan., Next” is not a valid promissory note [Illustration (h) to Sec. 4],
(5) Certainty of Parties (i.e. Payee and Maker)
There must be two parties to a promissory note; a note cannot be made payable to the maker himself, such a note is nullity; the reason being that the same person is both the promisor and the promisee. Thus a note in the form, “I promise to pay myself” is not a promissory note. It is, however, valid if it is endorsed by the maker, because then it becomes payable to bearer, if endorsed in blank, or to the indorsee or order, if specially endorsed [Gay v Landal (1848) 17 LTCP 286],
(6) Other than a Bank Note or Currency Note
A currency or bank note cannot be considered a promissory note.8 9 10 They are not merely securities for money but are themselves ‘money’ and legal tender for money represented by them. Thus, they have been excluded from the operation of N.I. Act.
A ‘Bank note’ is a bill, draft or note which is issued by any banker for the payment of money to the bearer on demand. A ‘Currency note’ is a note issued by the Government, containing an undertaking by the Government to pay the bearer on demand the sum specified in the note.
(7) Payable to Bearer or Order.
Although the Negotiable Instruments Act permits the issue of a promissory note payable to bearer, Sec. 31, Reserve Bank of India Act, prohibits the issue of such a promissory note? The reason for the restriction is that in case of currency notes above the denomination of Rs. 1, there is a promise by Governor, RBI to pay a certain sum of money to the bearer on demand, and if other-person were allowed to make similar promises, the monopoly of RBI for the purpose can’t be maintained. Thus, a promissory note payable to bearer will be invalid. So, only an order promissory note can be issued.