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Querist : Anonymous

Querist : Anonymous (Querist)

07 October 2010 Pay B Rs 500 on or before 1st Jan. 2000

What kind of instrument is this?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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09 October 2010 PROMISSORY NOTES

DEFINATION
“A PROMISORY NOTE IS AN
INSTRUMENT IN WRITING 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.”

THE PERSON WHO PROMISES TO PAY IS CALLED THE “MAKER”.
THE PERSON WHO IS PROMISSED THE PAYMENT IS CALLED THE “PAYEE”

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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09 October 2010 ELEMENTS OF A PROMISSORY NOTE

 WRITING: The promissory note must be in writing. Oral engagement or promise is excluded. No particular form of words is necessary. It may be in any form but the words shall be visible. Intention to make a note must be clear.

 UNDERTAKING TO PAY: It is not necessary to use the word “promise” but the intention must clearly show an ‘unconditional undertaking’ to pay the amount. The word ‘promise’ does not mean that a document is not a promissory note, provided it fulfils the requirements of this section and there is clear intention on the part of the parties to treat the document as a promissory note.

ILLUSTRATIONS:

a) “I acknowledge to pay on demand Rs 1000 for value received.” This is a promissory note.
But –“I acknowledge receipt of Rs 1000” is not a
Promissory note.
b) “I promise to pay B Rs 1000 on demand.” It is a
Promissory note.
c) “I owe you Rs1000” this not a promissory note.

 UNCONDITIONAL: It must contain definite and an unconditional undertaking to pay. Promise to pay should be unconditional. A conditional instrument is invalid. It must be certain of payment.

ILLUSTRATIONS:
Conditional promissory note:
a) “I promise to pay B Rs1000 7 days after C’s
marriage.”
b) “I promise to pay B Rs1000 after deducting a sum due to him.”
These writing are conditional. Payment is subjected to a certain event happening or not happening. Such writing are not promissory notes.

Unconditional promissory note:
a) A promise given for an executed consideration.
b) Any promise to pay an instrument on lapse of
certain periods, after a specified event which is
certain to happen.

Valid conditional promissory note:
a) “I promise to pay B Rs500, 3 days after the death
of X.
This is a valid promissory note as death is a
certain event to happen; though time of death is
uncertain.
b) “I promise to pay B Rs500 at Bombay.”

 SIGNED: The instrument must be signed by the maker thereof. Person must sign with his consent. It should not only be a physical act but also a mental act with an intention to sign.

 CERTAIN PERSON: The maker and payee of the instrument must be a definite person. A note may be made by several people to bind themselves jointly. A promissory note cannot be made by two persons. Two different people should fill in the role of a maker and payee. The maker endorses the note. Payee is capable of being ascertained where he is wrongly described, he will be a certain person.
E.g. - a promissory note payable to “my only niece living in England”....is a valid promissory note.

 SPECIFIC SUM: The sum promise to be paid must be specific.

ILLUSTRATIONS:

“I promise to pay B Rs 300 and all other sums due to
him.”

However, payment of a note with interest does not
invalidate a promissory note. Interest rate may or may
not be specified.

 PROMISE TO PAY MONEY ONLY: The promise to pay must be money only. Promise to pay anything other than legal tender, in full or in part, is not a promissory note.

ILLUSTRATIONS:

a) “I promise to pay B Rs. 100 in cash and Rs. 100
worth of cosmetics.”
b) “I promise to pay B Rs. 500 and to deliver him my
black horse.”
c) “I promise to pay B Rs. 500 in government Bonds.”
These are all invalid promissory notes.

 STAMPING: Promissory notes are chargeable with stamp duty. It is advisable to cancel the stamps with maker’s signature or initials. An unstamped or improperly or insufficiently stamped promissory note is not valid as evidence in court of law. No suit can be maintained upon an unstamped or improperly stamped promissory note.

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Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2010 OK SIR BUT PAYING ON OR BEFORE SOME DATE IS AN INSTRUMENT?
THE TIME OF PAYMENT IS NOT CLEAR OVER HERE

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 October 2010 The time of payment is as mentioned above is on or before 1st Jan. 2000.

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Querist : Anonymous

Querist : Anonymous (Querist)

11 October 2010 Thank u sir

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