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Promissory Note

Promissory note is referred by the term note payable in accounting. It is also known as just a note. Generally promissory note is known as contract between two parties where one party the issuer or maker makes or pledges an unconditional promise by keeping everything in writing where he agrees to pay some amount of money to the other party or payee either at determinable or fixed future time or at the demand of the payee under specific norms and conditions.

Promissory note specifically mentions the time and specific promise by a person to pay the amount. In that they differ from IOU by specially including the promise to pay rather than simply acknowledging the existence of debt. A promissory note includes when and how the debt will be repaid. This can be done through means like series of payments or by any other means according to mutual understanding of both parties. The promissory note is a promise to repay the debt put in written form that constitutes a legal agreement.

The promissory note should include and constitute the following details like debtors’ obligations, full names of the parties concerned and amount of the obligation. The debtors’ obligations must include interest rate, terms of repayment and can even include acceleration clause. Acceleration clause is the one, which makes the entire amount due even if single payment is late.

Creating and formatting of promissory notes should be done in a careful and professional manner. One should always be aware of and knowledgeable about ‘usury’ laws of the state. Usury laws are the laws that state the maximum interest rate a person can charge. Almost majority of the states charge fines and fees for those people who violate these ‘usury’ laws. Some of the states even have severe criminal penalties for those people who violate the laws.

People just cannot create promissory notes as they like it. One should be aware of the legal terms pertaining to promissory note. One should be aware of the most important legal term ‘promisor’. Promisor is the person who promises to repay or clear the debt or any other obligation that is secured by the note.

Another important term is ‘promisee’. Promisee is the person who is going to receive the payment on the debt or any other obligation that is secured on the note. The next term one should be aware of is ‘obligee’. Obligee is another alternate word for promisee. ‘consideration’ is the final term. Consideration is the legal term that is used for the value or amount received by both the concerned parties in return for entering into the contract. This amounts to mutual consideration.

Mutual consideration involves promisor receiving the loan, promisee receiving repayment as mentioned in the promissory note. Once people are clear about all the legal terminologies, they can create their own promissory notes. One can get the promissory notes by paying print fee at the court for a copy or they can even download a copy of it from Internet.

Tags: law, Legal, loan, money

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