Promissory
Note
(From Wikipedia, the free encyclopedia)
A promissory note is a contract detailing the terms of a
promise by one party (the maker) to pay a sum of money to the other
(the payee). The obligation may arise from the repayment of a loan or
from another form of debt. For example, in the sale of a business, the
purchase price might be a combination of an immediate cash payment and
one or more promissory notes for the balance.
The terms of a note typically include the principal amount, the
interest rate if any, and the maturity date. Sometimes there will be
provisions concerning the payee's rights in the event of a default,
which may include foreclosure of the maker's interest. 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 is
often considered a good idea for tax and recordkeeping reasons.
A promissory note differs from an IOU in that the latter is a simple
acknowledgement of the existence of a debt owed, whereas a promissory
note, as its name implies, contains an affirmative undertaking to pay
the amount stated.
In the United States, a promissory note that meets certain conditions
is a negotiable instrument governed by Article 3 of the Uniform
Commercial Code. Negotiable promissory notes are used extensively in
combination with mortgages in the financing of real estate
transactions. Other uses of promissory notes include the capitalization
of corporate finances through the issuance and transfer of commercial
paper.
At various times in history promissory notes have acted as a form of
privately issued currency. In many jurisdictions today, bearer
negotiable promissory notes are illegal precisely because they can act
as an alternative currency. Conversely, however, all Scottish banknotes
are effectively standardised demand promissory notes, although they are
rarely cashed.
[edit]See also
Bill of Exchange
Bond (finance)
Credit card
Student loan
Fannie Mae