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CMA Foundation · Fundamentals of Business Laws and Business Communication · Negotiable Instruments Act, 1881

Which of the following instruments signed by A qualifies as a promissory note under Section 4 of the Negotiable Instruments Act, 1881?

The acknowledgement of indebtedness of Rs. 1,000 to be paid on demand for value received is a promissory note. It contains an unconditional undertaking to pay a certain sum. The IOU, the uncertain sum and the marriage-linked promise each fail the Section 4 requirements.

  1. A"Mr. B, I O U Rs. 1,000."
  2. B"I promise to pay B Rs. 500 and all other sums which shall be due to him."
  3. C"I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received."Correct
  4. D"I promise to pay B Rs. 500 seven days after my marriage with C."

Explanation

The illustrations to Section 4 treat the acknowledgement of debt with a payment on demand as a promissory note because it contains an undertaking to pay a certain sum. A bare IOU lacks an undertaking to pay. The 'and all other sums' wording makes the amount uncertain. Payment tied to marriage is conditional.

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