A Promissory Note is a written and signed document containing an unconditional promise by one person to pay a certain sum of money to another person, either on demand or at a fixed future date. It is commonly used in financial and credit transactions. Unlike a bill of exchange, it contains a promise to pay, not an order to pay.
A promissory note can be used between sellers 1and buyers as well as between family and friends. Promissory Note serves as a promise by the person to whom money is lent to pay a certain amount of money to the lender.
Features of a Promissory Note:
1. A promissory note should be in writing.
2. Promise to pay the amount to the seller by the debtor. It should be clearly stated by the maker of the Promissory Note that he is willing to pay a certain amount on a fixed date.
3.It must contain an unconditional promise to pay.
4. It is created and signed by either the debtor (maker) or the party to whom credit is extended.
5. It is directed to the creditor or seller or the person who extends credit.
6. The payment is due immediately or at a specific future date.
7. The amount of money to be paid should be clearly mentioned.
8. The name of the payee should be clearly mentioned.
Parties to a Promissory Note:
1. Maker: The maker is the person who writes a promissory note and duly signs it. Generally, the maker is the debtor of a company or anyone to whom money is lent.
2. Payee: Payee is the person for whom the promissory note is written. He is the person who is entitled to get the payment.
3. Holder: A holder essentially acts as the custodian of a promissory note. Sometimes a note is endorsed to any other person. The person who has the promissory note at the date of payment is called the Holder. He could be the payee or anybody else.