Let us make in-depth study of the definition, features and parties of a promissory note.
Definition of Promissory Note:
“A promissory note is defined as 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.”
– Section 4 of the Negotiable Instruments Act, 1881.
In the case of promissory note, a person himself promises in writing to pay a certain sum of money unconditionally or according to a certain person or his order to a certain person. In the case of promissory note, there is no need of acceptance because in this case, the maker himself promises to pay a certain amount. It is worth mentioning that as per Reserve Bank of India Act, promissory note payable to the bearer is illegal.
Features of Promissory Note:
The features of promissory note are:
1. It must be in writing.
2. It must contain an unconditional promise to pay.
3. It should be signed by the maker.
4. The payment should be made to a certain person.
5. The certainty of the amount payable should be there.
6. It should be stamped.
In the above mentioned specimen of promissory note, Hari Das is the maker of the promissory note and Shri Vinay Pujari is the payee of the promissory note.
Parties to a Promissory Note:
To a promissory note, there are two parties viz. ‘Maker’ and the ‘Payee’.
(i) Maker or Drawer:
The maker is the person who makes and signs the note. He agrees to pay a certain amount on the date of maturity.
(ii) Payee or Drawee:
The person in whose favour the promissory note is drawn is called payee. He is also known as drawee or promisee. Usually, the drawee is also the payee. In the above case, the payee is the person to whom the amount due on promissory note is payable.
As per format of promissory note, Hari Das is the drawer or maker who promises to pay Rs. 1,00,000 to Shri Vinay Pujari who is the drawee or payee. However, if this promissory note is transferred in favour of Ghanshyam Das, then Ghanshyam Das will be the payee.