A promissory note is a legal instrument (more particularly, a financial instrument), in which one

party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the
payee), either at a fixed or determinable future time or on demand of the payee, under specific
terms. If the promissory note is unconditional and readily salable, it is called a negotiable
instrument.[1]
History

500 piastre promissory note issued and hand-signed by Gen. Gordon during the Siege of Khartoum
(1884) payable six months from the date of issue.[9]

Historically, promissory notes have acted as a form of privately issued currency. Flying cash
or feiqian was a promissory note used during the Tang dynasty (618 – 907). Flying cash was
regularly used by Chinese tea merchants, and could be exchanged for hard currency at
provincial capitals.[10] The Chinese concept of promissory notes was introduced by Marco
Polo to Europe.[11] According to tradition, in 1325 a promissory note was signed in Milan.
There is evidence of promissory notes being issued in 1384 between Genova and Barcelona,
although the letters themselves are lost. The same happens for the ones issued in Valencia in
1371 by Bernat de Codinachs for Manuel d'Entença, a merchant from Huesca (then part of
the Crown of Aragon), amounting a total of 100 florins.[12] In all these cases, the promissory
notes were used as a rudimentary system of paper money, for the amounts issued could not be
easily transported in metal coins between the cities involved. Ginaldo Giovanni Battista
Strozzi issued an early form of promissory note in Medina del Campo (Spain), against the
city of Besançon in 1553.[13] However, there exists notice of promissory notes being in used
in Mediterranean commerce well before that date.
Parties to a Promissory Note:
A promissory note has the following parties:
(a) The maker: the person who makes or executes the note promising to pay the
amount stated therein.
(b) The payee: one to whom the note is payable.
(c) The holder: is either the payee or some other person to whom he may have
endorsed the note.
(d) The endorser.
(e) The endorsee.
What Does a Promissory Note Include?

A thoroughly written promissory note should include:

 Amount of repayment
 Terms of repayment
 Amount of interest charged
 What will happen in the case of default

Essential Elements of a “Promissory Note”

(With Specimen)
Essentials of a Promissory Note:
To be a promissory note. an instrument must possess the following essentials: (a) It
must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay. A promise to
pay cannot be inferred. A mere acknowledgement of debt is not sufficient. If A
 writes to B "I owe you (I.O.U.) Rs. 500",there is no promise to pay and the
instrument is not a promissory note.
(c) The promise or undertaking to pay must be unconditional. A promise to pay "when
able", or "as soon as possible", or "after your marriage to I?", is conditional. But a
promise to pay after a specific' time or on the happening of an event which must
happen, is not conditional, e.g. "I promise to pay Rs. 1,000 ten days after the
death of B", is unconditional.
(d) The maker must sign the promissory note in token of an undertaking to pay
to the payee or his order.
(e) The maker must be a certain person, Le., the note must show clearly who is
the person engaging himself to pay. .

(f) The payee must be certain. The promissory note must contain a promise to
pay to some person or persons ascertained by name or designation or to
their order.
(g) The sum payable must be certain and the amount must. not be capable of
contingent additions or subtractions. If A promises to pay Rs. 100 and all other
sums which shall become due to him, the instrument is not a promissory note.
(h) Payment must be in legal money of the country. Thus, a promise to pay Rs. 500
and deliver 10 quintals of rice is not a promissory note.
(i) It must be properly stamped in accordance with the provisions of the Indian
Stamp Act. Each stamp must be duly cancelled by maker's signature or initials.
(j) It must contain the name of place, number and the date on which it is made.
However, their omission will not render the instrument invalid, e.g. if it is
undated, it is deemed to be dated on the date of delivery.
Note: A promissory note cannot be made payable or issued to bearer, no matter whether it
is payable on demand or after a certain time
(Section 31 of the RBI Act).

Following is a Specimen of Promissory Notes:

An instrument is valid as a promissory note if it is so drafted as to satisfy the essential

requirements of a promissory note. Subject to this condition the parties may use any form
desired. Some typical forms are given below.

(i) “On demand I promise to pay A, B of No. 5, Beadon St., or order Rs. 1000 (Rupees one
thousand only) with interest at 8 per cent per annum, for value received in cash.” Sd/A”. Y.

(Banks generally follow the type as indicated in item on (i) above).

Date ________
 Address ________

(ii) “One year after date I promise to pay C D. or order Rs. 10000.”

Sd/X Y

Date ________

(iii) “On demand I promise to pay B or order Rs. 500.” —Sd/X Y.

(iv) “1 acknowledges me to be indebted to B in Rs. 1000 to be paid on demand, for value

received.”
 FORM No.1
PROMISSORY NOTE UNDER SEC.4, NEGOTIABLE INSTRUMENTS ACT,
1881 IN WHICH NO INTEREST IS CONTEMPLAIED AND NO TIME FOR
PAYMENT IS MENTIONED

I, Sri._____________________ S/o. _________________________

promise to pay Sri.___________________ S/o.________________
_____________ or order, the sum of Rs.______ (Rupees______________only)
Place:
Date: Signature.

FORM No.2
PROMISSORY NOTE UNDER SEC.4, NEGOTIABLE INSTRUMENTS ACT,
1881 MADE BY JOINT PROMISORS

We, Sri.______________________ S/o._____________________ and

Sri.______________________ S/o._________________________ acknowledge
ourselves to be indebted to Sri.______________________
S/o._____________________ in Rs.________ (Rupees________________only)
to be paid on demand, for value received.
Place: [Signed]
Date: [Signed]

FORM No.3
JOINT PROMISSORY NOTE
We, Sri.______________________ S/o._____________________ and
Sri.______________________ S/o._________________________ promise to pay
Sri.______________________ S/o._____________________ the sum of
Rs.________ (Rupees________________only) for value received.
Place: [Signed]
Date:
[Signed]

FORM No.4
PROMISSORY NOTE PROVIDING FOR INTEREST
I, Sri.______________________ S/o._____________________promise to
pay Sri.______________________ S/o._____________________ or order, on
demand, the sum of Rs.______ (Rupees___________________only) with interest
at the rate of ________ per cent. per mensem / annum from the date of these
presents, for value received.
Place:
Date: Signature.

FORM No.5
 PROMISSORY NOTE PAYABLE BY INSTALMENT
I Sri.______________________ S/o._____________________ promise to pay to
Sri.______________________ S/o._____________________ the sum of
Rs._________ (Rupees ___________________only) by four equal instalments,
the first instalment of Rs.______ (Rupees________________only) to be paid on
the _______ day of __________ the second, on the day of _________ the third on
the ________ day of __________ and the fourth on the__________ day of with
interest thereon at the rate of ________ per cent. per mensem / annum (the interest
to cease on the instalment paid) in consideration of full value received.
Place:-
Date:-
Signature.

What Happens If I Default on a Promissory Note?

Promissory notes are legally binding documents, even if they are considered to be negotiable.
Negotiable simply means that the document may be altered by a later agreement, and changes
must usually be enforced by further monetary consideration. Defaulting on a promissory note
can result in serious consequences, especially if there is an acceleration clause included.

When a borrower defaults on a promissory note that includes a acceleration clause by missing
a payment, the entire amount of the loan will be due no matter what the initial term of the
repayment.

If a borrower defaults on a promissory note by failing to make a payment on time, the holder
of the promissory note may give notice of the default to the borrower and if the past due
payment is not paid, the holder can file an action to collect the entire balance of the note plus
any interest due.

Finally, failure to fulfill a promise recorded in a promissory note can result in poor credit
scores. Violations can even effect child custody rights, particularly in the case of repeated or
habitual defaults.

Promissory Note

History

Parties

What Does A Promissory Note Include

Essential Elements Of A Promissory Note

Following is a Specimen of Promissory Notes:
Types Of Promissory Notes
Forms
What Happens If I Default on a Promissory Note?