What is promissory note? "What are the essential elements that must be present for a document to be considered a valid promissory note?" Define…

What is a Promissory Note? According to Section 4 of the Negotiable Instruments Act,1881, A 'Promissory Note' 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. Essential Elements of a Promissory Note (1) In writing - It must be in writing to be legally enforceable, an oral promise to pay is not sufficient. (2) There must be an express promise to pay . Mere acknowledgement of debt is insufficient. (3) The promise to pay should be definite and unconditional . Therefore, 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. However, the promise to pay may be subject to a condition, which according to the ordinary experience of mankind, is bound to happen. (4) A promissory note must be signed by the maker otherwise it is incomplete and ineffective. (5) Promise to pay money only. (6) Promise to pay a certain sum. (7) The maker and payee must be certain, definite and different persons. A promissory note cannot be made payable to the bearer (section 31 of the Bank of India Act,1934, RBI Act). Only the Reserve Bank or the central government can make or issue a promissory note 'payable to bearer'. (8) Stamping: A promissory note must be properly stamped in accordance with the provisions of the Indian Stamp Act and such stamp must be duly cancelled by maker's signatures or initials on such stamp or otherwise.