Promissory Note

A Promissory Note is a financial and legal instrument in which one party promises to pay a specified sum of money to another party either on demand or at a predetermined future date. It serves as a written acknowledgment of debt and includes all the essential terms of the lending arrangement.

Key Parties Involved

1. Maker/Issuer – The person or entity who promises to pay the specified amount.
2. Payee/Lender – The person or entity who is entitled to receive payment.
3. Borrower (if different from Maker) – In some cases, the borrower and maker can be distinct, but the maker is ultimately responsible for repayment. 

Key Features of a Promissory Note

• Written Document: Must be in writing and signed by the maker.
• Unconditional Promise to Pay: Payment is guaranteed as per the terms.
• Specified Amount: Clearly states the principal sum to be paid.
• Payment Terms: Includes interest rate, due date, and repayment schedule.
• Transferability: Can often be negotiable, allowing transfer to another party.
• Functions and Importance Provides legal proof of debt and repayment obligations.
• Facilitates lending and borrowing in both personal and commercial transactions.
• Protects the rights of the lender in case of default.
• Ensures clarity of terms between the parties involved. 

Example: A company (maker) issues a promissory note to a supplier (payee) promising to pay ₹5,00,000 with 8% interest on or before 31st December 2025.