What is Promissory Note?

A promissory note may also be used like a bill in making payment of trade transaction. A promissory note is defined by section 4 of the Negotiable Instrument act, 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 to, or to the order of a certain person. A promissory note can’t be made to bearer.

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There are two parties to a promissory note (a) maker and (b) Payee. Maker is the person who writes out the promissory note. He undertakes to pay the amount mentioned in the instrument whereas Payee is the person to whom the payment is to be made i.e. creditor or Seller of goods.

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