Promissory Note: Meaning and Explanation

Promissory Note:

A promissory note is an instrument that contains the written and signed promise by the maker(the debtor) to pay a certain amount to the creditor at the specific date or on-demand.

“A Promissory Note is writing (not being a banknote or 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 the bearer of the instrument”.

-Section 4 of India’s Negotiable Instruments Act, 1881

The feature of the Promissory Note: –

1. It is in writing.
2. An unconditional promise to pay a certain sum of an amount.
3. An amount should be described in it.
4. It must be signed by the maker or issuer.
5. The document must be dated and properly stamped.
6. The amount must be payable to either a certain person or on his/her behalf.
7. It clearly mentions the date of payment.

The Parties Involved in the PO:-

There are three parties are involved, shown as follows:-

1. Maker
2. Payee

1. Drawer: – 

The maker is the person who writes the promissory note or who promise in writing to the payee(receiver) to pay a certain amount on a specific date or on the demand.

2. Payee: –

The person to whom the payment is made is known as the payee.

Contents of Promissory Note: –

Bills of Exchange include the following contents: –

1. Title of note : –

The title “Promissory Note” will be mention on the face of the document.

2. Date of drawn: –

The date of drawn a bill should be written on it.

3. Amount to be paid: –

The certain amount payable will be described on it in the figures and also in words.

4. Date of payment or Term: –

The specific date or the term of the note will be mention on it. The term means for 2 months or 3 months etc. The term is the tenure of the bill and runs from the date of the bill. There will be a grace period of 3 days in addition to the total term of the bill.

5. Unique Identification Number: –

Every note has a unique identification number. it will be mention on it.

6. Name of Maker(issuer or Borrower): –

The name of the maker must be mention on it.

7. Signature of Maker(issuer or Borrower): –

The bill is also signed by the maker.

The format of Promissory Note: –

The following image shows the specimen of the Promissory Note:

These following are the some oldest original document of the Promissory Note.

A 1926 Note from the Imperial Bank of India, Rangoon, Burma for 20,000 rupees plus interest

A note issued by the Second Bank of the United States, December 15, 1840, for the amount of $1,000

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