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Promissary Notes

A Promissory Note is a written, signed and dated two-party negotiable instrument containing an unconditional promise by the maker (or obligor, payor, promisor) to pay a definite sum of money to a payee (or promisee, holder) on demand or at a specified future date. It is often used as a means to borrow funds or take out a loan.

So it’s basically a promise to pay a certain amount of money to someone, on demand, or at a specified time.

The only difference between a promissory note and a bill of exchange is that the maker of a note pays the payee personally, rather than ordering a third party to do so.

The terms of a note usually include the principal amount, the interest rate if any, the parties, the date, the terms of repayment (which could include interest) and the maturity date. Sometimes, provisions are included concerning the payee’s rights in the event of a default, which may include foreclosure of the maker’s assets. Demand promissory notes are notes that do not carry a specific maturity date, but are due on demand of the lender. Usually the lender will only give the borrower a few days’ notice before the payment is due. For loans between individuals, writing and signing a promissory note are often instrumental for tax and record keeping. A promissory note alone is typically unsecured, but these may be used in combination with security agreements such as mortgage, in which case they are called mortgage notes.

International law

Definition and usage of promissory notes are internationally established by the Convention providing a uniform law for bills of exchange and promissory notes, signed in Geneva in 1930. Article 75 of the treaty stated that a promissory note shall contain:

  • the term “promissory note” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument
  • an unconditional promise to pay a determinate sum of money;
  • a statement of the time of payment;
  • a statement of the place where payment is to be made;
  • the name of the person to whom or to whose order payment is to be made;
  • a statement of the date and of the place where the promissory note is issued;
  • the signature of the person who issues the instrument (maker).

British law

§ 83. BILLS OF EXCHANGE ACT 1882. Part IV.

Promissory note defined

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

(2)An instrument in the form of a note payable to maker’s order is not a note within the meaning of this section unless and until it is indorsed by the maker.

(3)A note is not invalid by reason only that it contains also a pledge of collateral security with authority to sell or dispose thereof.

(4)A note which is, or on the face of it purports to be, both made and payable within the British Islands is an inland note. Any other note is a foreign note.

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