Section 4 of the Negotiable Instruments Act 1881, states that, “A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”
An instrument designated to be a promissory note must acquire the following elements:
- It must be in writing: Simply a verbal promise to pay is not a promissory note. The system of writing (either in pencil or printing or ink etc.) is insignificant, but it must be in any form that cannot be distorted easily.
- It must definitely be a clear understanding or an express promise to pay: There must be an express undertaking to pay. Just an acknowledgment is not sufficient.
- Promise to pay must be absolute: A conditional undertaking obliterates the negotiable character of an otherwise negotiable instrument. As a result, the promise to pay must not depend on the occurrence of some outside event or contingency. It must be payable completely.
- It should be signed by the maker: The person who assures to pay must sign the instrument even if it might have been written by the promisor himself. There are no limitations regarding the place or form place of signatures in the instrument. It may be in any part of the instrument. The only lawful requirement is that it should specify with conviction the person’s identity & his intention to be bound by the terms of agreement.
- The maker must be certain: The note self must show clearly who the person is agreeing to initiate the accountability to pay the amount. In case a person signs in a tacit name, he is accountable as a maker because a maker is taken as convinced if from his description adequate indication follows about his individuality.
- The payee must be certain: The instrument must indicate with confidence the person to whom the promise has been made. The payee may be determined by name or by designation.
- The promise should be to pay money & money only: Money means legal tender money & not rare and old coins. A promise to send paddy either in the alternative or in addition to money doesn’t represent a promissory note.
- The amount should be certain: One of the significant distinctiveness of a promissory note is certainty—not only concerning the person to whom or by whom payment is to be done but also concerning the amount.
- Other formalities: The other formalities regarding number, date, place, consideration etc. though usually found given in promissory notes but are not necessary in law. The date of instrument is not material unless the amount is made payable at a certain time after date.