Facts of the Case
- Mr. X executes a promissory note stating that he promises to pay Mr. Y, his partner, a sum of Rs. 10,000.
- The payment is promised only on the condition that Mr. Y retires from the partnership firm.
- The dispute arises on whether this conditional promise creates a valid promissory note.
Issues in the Case
- Does the note constitute an unconditional promise to pay as required under law?
- Is the contingency of retirement valid under the definition of a promissory note?
- Can a conditional instrument qualify as a negotiable instrument?
Principles Associated With It
- As per Section 4 of the Negotiable Instruments Act, 1881, a promissory note must:
- Be in writing
- Contain an unconditional promise to pay
- Be signed by the maker
- Be for a certain sum of money
- Be payable to a certain person, their order, or bearer
- If the payment is subject to a condition or event (like retirement), it is not an unconditional promise.
- Any such contingency makes the instrument non-negotiable and hence not a valid promissory note.
Judgement
- Since the payment of Rs. 10,000 is conditional upon Mr. Y’s retirement, the promise is not absolute.
- This violates the requirement of an unconditional promise under Section 4.
- Therefore, the instrument does not qualify as a valid promissory note.