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SUBJECT: Drafting, pleading and conveyance

Project topic:
Deed of promissory note

Submitted By
Shikhar Neelkanth
Roll no. 1233
4 Year, 8 Semester, B.B.A. LL.B.(Hons.)
th th

Submitted to
(Dr.) B.R.N Sharma
Faculty of DPC

Submitted on
ACKNOWLEDGEMENT

I would like to acknowledge all those who helped and supported me during the duration and
conclusion of this research and writing of this Project. At this juncture, I would like to express
my deepest thanks and heartfelt gratitude to Dr. B.R.N. Sharma sir for his unwavering support
and invaluable guidance during the entire course of the research and drafting. He has not merely
been instrumental but also a motivating force behind the hard work carried out for the conclusion
of this project.

I express my gratitude towards the Vice-Chancellor of my college, CHANAKYA NATIONAL


LAW UNIVERSITY, PATNA for extending his support and providing me with the facilities and
infrastructure for comfortable continuance of this research. I would also like to express my deep
sense of gratitude towards the Librarian for his immense support and guidance. I would also
thank my Institution and my faculty members without whom this project would have been a
distant reality. I also extend my heartfelt thanks to my family and well-wishers for their blessing
and support.

Last, but far from the least, I would express my gratitude towards the Almighty for obvious
reasons.

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TABLE OF CONTENTS

ACKNOWLEDGEMENT .................................................................................................................... 2

OBJECTIVE ................................................................................................................................. 4

HYPOTHESIS............................................................................................................................... 4

RESEARCH METHEDOLOGY ................................................................................................. 4

Concept of promisory notE .......................................................................................................... 5

Legal incidents of promissory notes ............................................................................................ 8

Particulars of Deed of PROMISSORY NOTE ......................................................................... 10

MODEL FORMAT ..................................................................................................................... 13

A. Promissory Note Payable on Demand ............................................................................ 13

B. Joint Promissory Note Payable on Demand .................................................................. 13

C. Promissory Note Payable after Date or Sight................................................................ 13

Three months after date (demand or sight as the case may be) .......................................... 13

D. Promissory Note Payable in Instalments with Default Clause .................................... 14

E. Promissory Note Payable on a Fixed Date or in Instalments....................................... 14

CONCLUSION ........................................................................................................................... 15

BIBLIOGRAPHY ....................................................................................................................... 16

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OBJECTIVE

 To know about various promissory notes.


 To prepare model promissory notes.
 To understand the essentials of promissory note.

HYPOTHESIS

Promissory note is a signed document containing a written promise to pay a stated sum to a
specified person or the bearer at a specified date or on demand.

RESEARCH METHEDOLOGY

The research methodology used here in the project would be the doctrinal research methodology
and the entire content would be based on the specific materials collected through different law
articles and book.

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CONCEPT OF PROMISORY NOTE
A Brief Note On Promissory Note

The sum of money promised to be paid must be certain and definite amount. The law relating to
‘Negotiable Instruments’ in a Bills of Exchange Act, is codified in the commonwealth. Almost
all jurisdictions, including in New Zealand, UK, Mauritius, codified the law as to negotiable
Instruments. In India, The Negotiable Instrument Act, 1881 came into force. To understand the
meaning of negotiable instrument, it is suffice to say that it means a promissory note, bill of
exchange or cheque payable either to order or to bearer. During the Renaissance, Promissory
note was in use in Europe. Later, during 20th century, the instrument changed substantially both
in use and form and certain claused were added.

History of Promissory note:

Common prototypes of bills of exchanges and promissory notes originated in China. Here, in the
8th century during the reign of the Tang Dynasty they used special instruments called feitsyan
for the safe transfer of money over long distances. Later such document for money transfer used
by Arab merchants, who had used the prototypes of bills of exchange – suftadja and hawala in
10–13th centuries, then such prototypes had used by Italian merchants in the 12th century. In
Italy in 13–15th centuries bill of exchange and promissory note obtain their main features and
further phases of its development have been associated with France (16–18th centuries, where
the endorsement had appeared) and Germany (19th century, formalization of Exchange Law). In
England (and later in the U.S.) Exchange Law was different from continental Europe because of
different legal systems

Section 4 of the Negotiable Instruments Act, 1881: "Promissory note":

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.

To understand the term word ‘promissory note’ clearly, it is apt to refer the following ruling of
the Hon’ble High Court of Andhra Pradesh. Bolisetti Bhavannarayana vs. Kommuru Vullakki

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Cloth Merchant (1996 (1) ALD Cri 530, 1996 (1) ALT 917; Bench: K Agarwal, V R Reddy, N S
Reddy; in this case, the following question came for consideration.

Whether the suit document is a Promissory Note? If not, what is its nature?

To answer this question, it was held as follows: ‘ As to the first question, we may remind
ourselves of the fact that the Indian Stamp Act, 1899, (in short, the "Stamp Act"), levies stamp
duty on various documents at varying rates and, therefore, it becomes necessary first to
determine the nature of any document before deciding the question of proper stamp duty payable
on such document. Accordingly the definition of a 'bond' or a 'promissory note' as given in the
Stamp Act alone is material for the purpose of determination of the nature of any document.
Section 2(22) of the Stamp Act defines 'promissory note' as follows:

"Promissory note" means a promissory note as defined by the Negotiable Instruments Act, 1881;
"It also includes a note promissing the payment of any sum of money out of any particular fund
which may or may not be available, or upon any condition or contingency which may or may not
be performed or happen."

In the context of this definition of "promissory note" given in Section 2(22) of the Stamp Act, the
definition of the term as given in Negotiable Instruments Act, 1881 assumes importance. Section
4 of the latter act defines "promissory note" as follows:

"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.

This definition of promissory note itself indicates that there may be several types of promissory
notes. Out of these various categories of promissory notes, some may be treated as 'negotiable
instrument' within the meaning of Section 13 of the Negotiable Instruments Act and some others
may not be so treated, but by that very fact, the nature of the document will not change, if it is
otherwise a promissory note. In other words, if a document is a 'promissory note' within the
meaning of Section 4 of the Act, it will continue to be 'promissory note', whether it comes or
does not come within the meaning of the term 'negotiable instrument' as defined in Section 13 of
the Act. For this reason, were are of the view that Section 13 of the Negotiable Instruments Act,

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or the definition of the term 'negotiable instrument' is wholly irrelevant when it comes to
deciding the nature of a particular document as a promissory note, or otherwise. Similarly and
for similar reasons, it is wholly irrelevant to refer to the provisions of Section 13 of the Act while
deciding the nature of any document as a 'bond' or otherwise. Accordingly anything to the
contrary held in any of the authorities referred to in the orders of reference is not a good law.’

Promissory note is not a compulsorily attestable document: Genearally no attestors are necessary
to execute a promissory note. In Chandabolu Bhaskara Rao’s case1, the Honble HC of A.P held
that ‘Since promissory note is not a compulsorily attestable document, even if the signatures of
the attestors are taken, after its execution it does not amount the material alteration, and so it
does not get vitiated. Therefore, whether there were attestors or not at the time of its execution is
immaterial, more so when its execution is admitted.

The Hon’ble Full Bench Judgment of Madras HC reported in Hariram v. I.T. Commissioner2,
(F.B.). In this case the following document was under consideration, which reads as follows:

"Promissory note executed on 14-6-1947 in favour of Arunachala Chettiar, son of Kolakkara


Chettiar residing at Palappudi Village, hamlet of Sathyamangammal, Gingi Taluk by
Kuppuswami Chettiar, son of Venkatachala Chettiar, residing at the aforesaid village. In respect
of the sum received from you at Tiruvannamalai by me in the year 1943 and given for opening a
Javuli shop by T. Arunachala Iyer the sum found due to you is Rs. 3,000. As this sum of rupees
three thousand had to be paid to you, I shall pay the same together with interest at Rs. 0-4-0 per
month per Rs. 100 in six equal instalments, and discharge the same. To this effect is the
promissory note executed by me with my consent."

Their Lordships held that the document in question is not a promissory note, because there is no
unconditional undertaking to pay a certain sum of money.

The distinction between the promissory note and hundi or bill of exchange is explained by his
lordship Vradachariar, J., in these words:

"But where the borrower gives his own promissory note as part of the loan transaction, it seems
to me artificial to treat that every ' promise to pay ' obtained in that note as amounting to a
payment, and then to seek to import the theory of ' conditional ' payment. "

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LEGAL INCIDENTS OF PROMISSORY NOTES

There are two main types of promissory notes which are as under3;

 Inland promissory notes


 Foreign promissory notes

1. Inland Promissory Notes

In this kind of promissory note, the maker and the Drawee belong to a same country. The inland
note may be individual or joint note.

2. Foreign Promissory Notes

In foreign promissory notes, the maker and the Drawee belong to different countries and also is
individual or joint note.

 Personal Promissory Notes: These are used to document a personal loan from a friend or
family member. Although many people tend to avoid legal writings when dealing with
trusted acquaintances, the use of a promissory note actually demonstrates good faith and
effort on behalf of the borrower.

 Commercial: Promissory notes are almost always a requirement when dealing with
commercial lenders such as a bank. Most commercial promissory notes are similar to
personal notes, although they can be stricter. If the borrower defaults, the commercial lender
is usually entitled to immediate repayment on the balance. Further, default can result in a lien
on the borrower’s property in order to obtain payments.

 Real Estate: These are similar to commercial notes with respects to the default
consequences. In this case, a lien is placed on the home or other real property. If default on a
mortgage results in a lien, the information becomes public record and can affect the
borrowers credit or purchasing abilities in the future.

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 Investments: In a business setting, promissory notes are sometimes exchanged in order to
raise capital for the business. This type of note may be a type of security interest and would
thus be regulated by securities laws. These notes often contain clauses dealing with returns
of investment for a certain time period

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PARTICULARS OF DEED OF PROMISSORY NOTE

Part- 1 Required elements to create an enforceable promissory note

1. Meet the required elements to create an enforceable promissory note. In order to be


enforceable, the note must include certain elements. Without any these you may not be able to
collect the money you loaned out.4

 The amount of the loan — the amount that is borrowed and owed.
 Repayment dates — the date payments are due or the loan must be repaid.
 Interest rate — the rate charged or paid on borrowed money. Interest rates are calculated
in terms of annual percentage rate or APR.
 Amount after interest has been applied or PI (principle + interest).
 The Pledge of Security Agreement or Collateral hold. List any goods or services and the
value used as a guarantee of the debt to be paid.
 Terms for late or missed payments, if applicable.
 Default terms — what will happen if the borrower fails to repay in a timely manner.
 Signature

2. Write down the terms of the agreement. These are the terms that the borrower and lender have
agreed upon covering each of the required elements above. You can find free forms to download
by doing an Internet search under "promissory note forms."5

You may want to include a repayment schedule with specific due dates in the note if there are
going to be monthly or weekly payments. 6

3. Decide on a secured or unsecured promissory note for repayment. A secured promissory note
requires the borrower to provide goods, property, or services as collateral, in the event the
borrower defaults on the debt. The value of the collateral should be equal to or greater than the
principal of the debt. 7

An unsecured promissory note requires no collateral to borrow. Good to excellent credit is


required to get an unsecured loan

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Part 2- Ensuring the Note is Enforceable

1. Make the promissory note enforceable. If it is not signed, for example, the note will not hold
up in court. The body of the document must include:
 Legal names of all parties that have a vested interest in the transaction.
 Address and phone numbers of each party involved, including the lender.
 The signature of the borrower and a witness. The lender's signature may or may not be
required. The requirement varies by state.
 Purpose — what the money will be used for. This requirement will also vary by state.

2. Inform the borrower of the right to transfer clause. The borrower has a right to be informed
that the note can be transferred by the lender to another party. The original terms and
agreement will remain effective, but the debt will be payable to a different party.

3. Inform the borrower of the right to cancel. Most states require that a borrower have three
days to cancel the note (not take out the loan) after they sign the promissory note. There is a
form the borrower signs that informs them of this right.8

4. When the loan is paid back, issue a Release of Promissory Note. This signifies the end of
both parties’ commitments under the note. A release can help prevent future disputes and
lawsuits. 9

If there was collateral that secured the promissory note, make sure that any liens are cancelled or
terminated.

Part 3- Collecting on an Unpaid Note

1. Write demand letters if the note is not paid by the due date. The language in the letter
should reference harsh legal action if the borrower does not pay what is owed. Make sure
you include a date that the borrower must pay to avoid legal action and loss of collateral
if it is a secured note.

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2. Demand the collateral if a secured note is not paid. Default of payments on debts by a
secured note requires the borrower to forfeit the items in lieu of payment. You may need
to go to court to collect on the loan or the collateral if it is not paid by the due date.
3. Take the borrower to small claims court. If you are owed a modest sum, such as $5,000
or less, then this is an inexpensive option. You will have a better chance of receiving
some of the funds owed on an unsecured note without having to pay high court and
attorney fees.

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MODEL FORMAT

A. PROMISSORY NOTE PAYABLE ON DEMAND

ON DEMAND I ………., aged about …….. years, son of .......... , resident of……… ,
promise to pay to……….., aged about ………… years, son of ……….., resident of
…………… , or order the sum of Rupees …………. (Rs …….) only, with interest at
……….. % per annum until repayment for value received.

DATED AND DELIVERED at …………..This the …………… day of……….. ,20…..

Signature

B. JOINT PROMISSORY NOTE PAYABLE ON DEMAND

ON DEMAND we, A. B., aged about ………. years, son of ……….., resident of ………,
and C. D., aged about ……… years, son of………… , resident of ……….., jointly and
severally promise to pay to E. F., aged about …………years, son of ………., resident of
………. , or order the sum of Rupees ………. (Rs …….. ) only, with interest at the rate of
……….% per annum until repayment for value received.

DATED AND DELIVERED at ……….. This the …………. Day of …………, 20 .. . . ..

SD. A. B.

SD. C. D.

C. PROMISSORY NOTE PAYABLE AFTER DATE OR SIGHT


THREE MONTHS AFTER DATE (DEMAND OR SIGHT AS THE CASE MAY BE)

I ………., aged about …….. years, son of .......... , resident of……… , promise to pay
to……….., aged about ………… years, son of ……….., resident of …………… , or order

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the sum of Rupees …………. (Rs ……. ) only, with interest at ……….. % per annum from
the date hereof until repayment for value received.

DATED AND DELIVERED at ………….. This the …………… day of………..


,20…..

Signature

D. PROMISSORY NOTE PAYABLE IN INSTALMENTS WITH DEFAULT CLAUSE

I,……………. aged about ........ years, son of ........ , resident of …………. , promise to repay
to .............,aged about………… years, son of .............. , resident of …………., the sum of
Rupees……….. (Rs ...... ) only, which I have this day borrowed, as follows :

Rs …………….. with interest at ...... % per annum from the date hereof until repayment by
the 10th of next month and the residue in three instalments with interest at the same rate from
the date hereof until repayment by the 10th of each subsequent month.

In default or delay by one week of any instalment the entire balance then due with interest
shall become immediately repayable.

DATED AND DELIVERED at ……….. this the ………… day of ……………,


20………..

Sd

E. PROMISSORY NOTE PAYABLE ON A FIXED DATE OR IN INSTALMENTS

Rs ………………

I, A. B. etc. hereby promise to pay to C. D. etc. or order the sum 'of ……………..Rs (in words)
on the ……………. (or, ………………… months after date) (or, in twelve equal instalments of
Rs …………… each payable on the first day of every month commencing from the first day of
……………. , 20……………. ).

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CONCLUSION

This research work does not give information as to all the aspects of promissory note, for
instance, I did not touch on the aspect of material alterations of the promissory note, the plea of
forgery, fabrication, etc. Inasmuch as there are catena of rulings on the ‘promissory note’, it is
very difficult to discuss all the case-law. However, I attempted to put forth idea of promissory
note and some rulings on this aspect. After close scrutiny and understanding of the research
work, I am in no doubt to say our knowledge on the aspect of Promissory note will be enriched.

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BIBLIOGRAPHY

1
Perumal Chettiar v. Kamakshi Ammal, ILR ( 1938 ) Mad 933 = ( AIR 1938 Mad 785 ( FB )
Chandabolu Bhaskara Rao vs Betha Saidi Reddy, 2006 (4) ALD 572
2
Hariram v. I.T. Commissioner, AIR 1952 All 706
3
Gabrielle Hollingsworth, Different Types of Promissory Notes,
url- http://www.legalmatch.com/law-library/article/different-types-of-promissory-notes.html
4
Url- http://www.nolo.com/legal-encyclopedia/promissory-notes-personal-loans-family-
30118.html
5
Url- http://www.lawdepot.com/contracts/promissory-note-form/?loc=USNY&pid=googleppc-
promis_usny-mainT2_a1-s-
ggkey_promissory%20note%20forms&gclid=CjwKEAiA1JuyBRCogJLz4J71kj0SJADsd6QR5r
HLcI0FFbi1H7ptoOsCrtmrvyxdYKi5nbX4JETrhRoC85jw_wcB#.Vkda9aSFOJc

6
Url- http://www.creditcards.com/credit-card-news/sample-promissory_note-friends-family-
loans-1293.php

7
Url- http://www.law360.com/articles/651272/creating-perfect-security-interests-a-primer

8
Url- http://wilawlibrary.gov/topics/contract.php

9
https://www.legalzoom.com/download/pdf/release-of-promissory-note.pdf

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