Promissory Note Defined

An Unconditional Promise
to Repay an Amount of Monies

A promissory note, in accounting, called a note payable, is a written agreement where the issuer or maker creates an unconditional promise to repay an amount of monies to the the payee, either using a set time or a date to be determined in the future or on demand by the payee, under explicit terms. A note is different from an IOU in that it contains a specific pledge to pay, other than simply admitting that a liability exists.

Typically, the term of a note includes the the rate of interest rate any, principal amount, and the due date. Often times, provisions include the payee's privileges in case of default, which might include foreclosing of the maker's property. Promissory demand notes do not provide for a specific date of maturity, but are due upon demand from the lender. Normally the lender will provide the borrower with only a few days of notice prior to the payment due date. Creating and signing a note with a promise to pay with loans among individuals, are many times created for record keeping and tax purposes. In the U.S., a promissory note which provides for certain circumstances is a transferable instrument under regulation of article 3 within the Uniform Commercial Code. Promissory notes which are negotiable are extensively used with real estate financing contracts when combined with mortgages. Promissory notes, also called commercial paper, is also issued to lend money to businesses. From a historical point of view, promissory notes have been a type of private currency. In many regions today, negotiable promissory bearer notes are not legal as they may act as a substitute currency. All Northern Irish and Scottish banknotes are fundamentally payable on demand standardized promissory notes. Feb 14, 2011

See also

  • Bank note
  • Treasury note
  • Bond (finance)
  • Credit card
  • Letter of credit
  • Student loan
  • Deed of trust

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