WE’VE all heard the adage a promise is a comfort to a fool, but is that always true? Some promises are in fact very comforting. A promissory note is an example of one of these comforting promises.

What is a promissory note?

A promissory note is an unconditional promise in writing made by one person to another signed by the maker, undertaking to pay, on demand or at a fixed or determinable future time, a certain sum of money, to, or to the order of, a specified person or to the bearer of the promissory note.

What are the elements of a valid promissory note?

1. The identity of the promisor, or the maker (the person who is going to pay the amount due on the promissory note) must be certain. The maker must be named or otherwise indicated in a promissory note with reasonable certainty. A promissory note may be issued by two or more persons whether they are partners or not, but an order to pay addressed to two persons in the alternative or to two or more persons in succession is not a valid promissory note.

2. The identity of the payee (the person entitled to the benefit of the promissory note) must be certain. Where the promissory note is not made payable to the bearer ie the person who has the promissory note in his possession, the payee must be named or indicated in a manner so that he or she can be identified with reasonable certainty. A promissory note may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of the two, or one or some of several payees. A promissory note may also be made payable to the holder of an office for the time being.

3. The sum payable must be certain. The amount to be paid to the payee must be stated on the face of the note, usually in both words and figures. The addition of interest does not make this sum uncertain so long as the rate of interest and the method of calculating the interest are also stated in the promissory note with certainty.

4. The manner in which the monies are to be paid must be certain. No particular manner of payment is required, and the promissory note may provide for payment either by a single payment in a lump sum, payment in stated instalments, or payable in stated instalments with a provision stipulating that if default is made on any instalment then the entire amount becomes due.

5. The time when the note becomes due must be certain. The Bills of Exchange Act states that a promissory note is payable at a determinable future time, which is expressed to be:

(1) At a fixed period after the date of issue or sight.

(2) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening may be uncertain.

An instrument expressed to be payable on a contingency is not a valid promissory note, and the happening of the event does not cure the defect.

Where a promissory note is not payable on demand the day on which it falls due is determined as follows:

(1)Three days, called days of grace, are, in every case where the promissory note itself does not otherwise provide, added to the time of payment as fixed by the bill, and the promissory note is due and payable on the last day of grace: Provided that—

(a) When the last day of grace falls on Sunday, Christmas Day, Good Friday, or a day appointed by royal proclamation as a day of public fasting, the promissory note is, except in the cases below, due and payable on the preceding business day;

(b) When the last day of grace is a bank holiday (other than Christmas Day or Good Friday) or when the last day of grace is a Sunday and the second day of grace is a bank holiday, the promissory note is due and payable on the succeeding business day.

(2) Where a promissory note is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run and by including the day of payment.

6. Signed by the maker and original payee. The Promissory note must be signed by the parties that are to be bound by the note for the promissory note to be effective.

7. Delivery. Every promissory note is incomplete and revocable, until it is delivered in a manner intended to give effect thereto. Delivery may be actual or constructive. Actual delivery is when the maker signs the promissory note and places it in the possession of the payee by physically handing over the promissory note to the payee or his agent. In the case of constructive delivery, physically parting with the document is not necessary. It is enough that there is a clearly expressed intention that the maker now holds the promissory note as agent of the payee. Where a promissory note is no longer in the possession of a party who has signed it a valid and unconditional delivery by him is presumed until the contrary is proved.

Consequences for breaking a promise?

According to the Bills of Exchange Act, the maker of a promissory note by making it—

(a) undertakes that he will pay it according to its tenour; and

(b) Is precluded from denying to a holder in due course the existence of the payee and his then capacity to demand payment of the promissory note

This means that the payee under a promissory note is entitled to summary judgement on the note and to reclaim the costs expended in the enforcement of the note. If you would like more information on promissory notes and the enforcement regime surrounding them, you should contact your attorney for more information.

Luke Phillips is an Associate at Myers, Fletcher and Gordon. He may be contacted at luke.phillips@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.