Promissory Note
A written promise to pay a stated sum. It is a negotiable instrument, which means the stamping is not a formality. An unstamped note is not admissible in evidence.
- Guidance on the stamping, which is what makes it admissible
- Principal, interest, parties, dates and repayment terms all stated
- Written for the lender or for the borrower, whichever you are
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What a promissory note is
A signed document containing a written promise to pay a stated sum to a specified person, on a date or on demand.
A promissory note is a document containing a written promise to pay a stated sum to a specified person, at a specified date or on demand, duly signed. It usually includes the principal amount, the interest rate if there is one, the parties, the date, the terms of repayment and the maturity date. Additional points about repayment are often added according to what the parties have agreed.
It is used as a document to promise to pay money in the future on the conditions set out in the note, and it has to be duly signed by the parties between whom it is made.
It is a negotiable instrument under the Negotiable Instruments Act, 1881, and that is what makes the stamping matter. An unstamped or insufficiently stamped promissory note is inadmissible in evidence, and unlike most documents the defect cannot be cured by paying the duty afterwards. A note on a blank sheet of paper may be a promise nobody can enforce.
- What it is
- A negotiable instrument
- Between
- Maker and payee
- Both sign it
- Governed by
- Negotiable Instruments Act, 1881
- Must state
- Sum, parties and date
- And the repayment terms
- Stamping
- Required
- At the rate the law sets
- If unstamped
- Inadmissible
- And it cannot be cured later
- Payable
- On a date or on demand
Why have one drafted
- Drafted as a negotiable instrument rather than as a letter about money
- Interest, repayment schedule and default terms written properly
- Guidance on the stamping, which is what a downloaded format leaves out
- Drafted for the lender or for the borrower, whichever you are
- Thousands of customers served across every state in India
What the drafting covers
- A short call about the loan, the parties and the repayment arrangement
- A promissory note drafted from scratch by an experienced lawyer
- Principal, interest, maturity date and the repayment terms stated precisely
- What happens on a default, agreed in advance
- Guidance on the stamping and on executing it correctly
A promissory note is unconditional by definition. If the promise to pay depends on something happening first, what you need is a loan agreement, and we will say so on the call.
What makes a note enforceable
It has to be stamped
A promissory note attracts stamp duty, and an unstamped one is inadmissible in evidence. This is the defect that cannot be fixed afterwards, which makes it the one to get right first.
The promise has to be unconditional
A promise to pay "once the project is complete" is not a promissory note. Conditions belong in a loan agreement, and putting them here costs the document its status.
A certain sum, and certain parties
The amount has to be definite and the payee identified. "The balance outstanding" is not a sum, and vagueness is what turns a note into a dispute about arithmetic.
Signed by the maker
The person promising to pay signs it. Both parties normally hold a signed copy, and the original stays with the person owed the money.
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Have questions? Find answers here
Still have a question? Our team is happy to help, at no charge and with no obligation to buy anything.
Does a promissory note have to be stamped?
Yes. It is a negotiable instrument and attracts stamp duty, and an unstamped or insufficiently stamped note is inadmissible in evidence.
It is also the rare case where the duty cannot be paid later to cure the defect, which is why a note written on plain paper may be unenforceable however clearly it is worded.
What is the difference between a promissory note and a loan agreement?
A promissory note is a one-sided, unconditional promise to pay. A loan agreement is a two-sided contract that can carry conditions, security, covenants and a drawdown schedule.
If your arrangement has conditions in it, a loan agreement is the right document. If it is simply "I owe you this much and will pay it by then", the note is.
Can interest be charged?
Yes, and the rate should be stated on the note along with how the interest is calculated. A note that is silent on interest is generally read as interest-free.
Does it need a witness or a notary?
Neither is required for validity. Witnesses are worth having on a note of any size, because they make the execution far harder to dispute later.
What if the borrower does not pay?
A properly stamped note is strong evidence of the debt, and a summary suit is available for a claim on a negotiable instrument, which is a faster route than an ordinary civil suit.
That advantage is exactly what an unstamped note gives away.
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