I WILL PAY: CHARACTERISTICS, WHAT IT IS FOR, ELEMENTS, EXAMPLES - ARTE - 2024

The promissory note is a legal financial tool that contains a written promise by one of the parties (the creator or issuer of the promissory note) to pay the other party (the beneficiary) a total amount of money owed, when requested or on a specified date. future.

It is a negotiable instrument duly signed by the person who made it, which contains an unconditional promise to pay the amount of money indicated to a particular person or to another person, as indicated by that particular person, when requested or on a specified date, under the agreed terms.

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A promissory note generally contains all the clauses related to an indebtedness, such as the interest rate, the principal amount, the date and place of issue, the maturity date and the signature of the issuer.

Under this agreement, a borrower obtains a specified amount of money from a lender and agrees to pay it back with interest for a predetermined period of time.

Debt instrument

Although they can be issued by financial agencies, promissory notes are debt documents that allow individuals and companies to obtain financing from a source other than a bank.

This source can be a company or an individual willing to receive the promissory note and thus provide financing on the agreed terms. Indeed, any entity or person becomes a lender by issuing a promissory note.

Therefore, it is a short-term credit instrument, which is not equated with a bank note or a monetary note.

The interest rate can be fixed during the life of the promissory note, or vary according to the interest rate charged by the lender to its best clients, known as the prime rate.

This differs from an account payable, where there is no promissory note, nor is there an interest rate to be paid, although a penalty may apply if the payment is made after a designated due date.

characteristics

Written document

A verbal promise of payment by the borrower is not a promissory note. The promise must be in writing. The writing can be in ink or pencil, or an impression. It can be in any form, it will be a promissory note as long as it meets the requirements.

Payment promise

There must be a commitment or a promise to pay expressed. A simple acknowledgment of indebtedness or an implicit commitment by the use of the word "debt" is not sufficient and does not constitute a promissory note.

Signed by the issuer

The instrument must be signed by the originator of the promissory note. Otherwise it will be incomplete and has no effect.

Even if it is written by the same issuer and his name appears in the body of the document, his signature must be there. The signature of the person authenticates and gives effect to the contract contained in the instrument.

Definitive and unconditional promise

It can be seen that a promise to pay is conditional if it depends on an event that will surely occur, but the moment of its appearance can be uncertain.

Promise to pay only money

The payment to be made in accordance with the instrument must be in money of the legal tender. If the instrument contains a promise to pay something more than money or something in addition to money, it cannot be a promissory note.

The name of the creator must be clear

The instrument itself must state with conviction who is the person or persons who commit to pay.

The amount to be paid must be final

For a promissory note to be valid, it is also essential that the promised amount of money to be paid is true and final. The amount to be paid should not depend on additional contingencies or subtractions.

What is a promissory note for?

Nothing is worse than lending money and not having a guarantee that it will be recovered. This was the case until the promissory notes were established. They are used to secure a debt that a lender lends to a borrower.

Not only do the promissory notes require the borrower to repay a loan, but the document specifies any additional needs the lender and borrower may have.

The repayment dates, amounts and other options are determined by both legal parties. Once both parties enter into the agreement, the terms of the promissory note are legally binding.

Financial instruments

The promissory note is a common financial tool in many domains, used essentially for short-term financing of organizations.

Frequently, the provider of a service is not paid in cash by the buyer, who is generally another company, but within a period of time whose duration has been agreed by both the buyer and the seller.

The reasons for this can vary. Historically, many companies tend to balance their books by executing payments at the end of each week or month. Any product purchased before that time would be paid for only at that time.

Depending on the nation, this extended payment period may be legally regulated. In countries like Spain, France or Italy, it usually fluctuates between thirty and ninety days after purchase.

Private money

Promissory notes can serve as a form of private money. In the past, especially during the 19th century, the unregulated and widespread use of loans was a source of great risk for private financiers and banks.

They often faced insolvency from debtors, or were simply scammed by them.

Promissory note elements

Transmitter

The one who issues the promissory note is the debtor or borrower, who promises to pay a certain amount to the lender within a stipulated period of time. Your name and address are generally required.

Turned

It is the other party involved, in whose favor the promissory note is made. This person or company is the creditor who provides the goods on credit, or the lender who lends the money.

In certain cases, the drawee may also request collateral for the loan, usually an asset.

Beneficiary

It is the final recipient of the instrument and, consequently, of the payment. The drawee and the beneficiary can be the same person when the amount is due to the person in whose favor the promissory note was made.

However, when by order of the drawee the stipulated amount must be paid to another person, then the beneficiary would be different.

A promissory note can also be paid to the order of the bearer. This means that anyone who has this document can present it to the issuer for payment.

Unconditional promise to pay

In certain countries, the word "promissory note" must be visible on the document. In others it is sufficient to use a phrase that clearly states that there is a payment commitment.

Amount

The amount of money that the beneficiary will receive must be clearly stated in the document. A good practice in many countries is to write the amount twice on the promissory note, in numbers and in words.

Due date

This is the date the note will be paid. If the due date is not explicitly indicated in the document, there must be information available to calculate the payment date.

A promissory note may not contain an expiration date. This is the case with notes paid to bearer, where "on demand" is mentioned on the note.

Creator's signature

The signature is the binding force of the promissory note. It is the formal proof that whoever created it accepts the content of the document and agrees to pay.

Requirements

The promissory note must be documented. A verbal agreement or contract would not be valid. The borrower must issue a written contract that he agrees to perform.

This document must mention the amount to be paid to the creditor, who will pay that amount of money and to whom. You should also mention the date within which the borrower agrees to pay.

Written signature

For a promissory note to be valid, the borrower must sign the document. If there is a guarantor for the loan, they must also sign the promissory note. Being a guarantor means that you will have to repay the loan amount in case the borrower defaults on the payment.

The terms in the documentation are the only ones that the borrower or lender must accept, unless both parties sign another agreement with additions or amendments.

Loan amount and interest rates

All promissory notes must provide the original loan amount and interest rate. The interest rate can be fixed or variable, depending on the terms of the lender.

With a fixed interest rate, the rate does not change during the period of the note. A variable interest rate can go up and down. The promissory note must include a clause in order to change the interest rate.

In addition to the interest rates, the charges that the borrower must pay if he defaults on the loan should be included.

Payment schedule

The type of payment schedule depends on the type of promissory note that is being used. There are several types of promissory notes, such as installment promissory notes, open promissory notes, on-demand promissory notes, and plain promissory notes. The type of promissory note to use depends on the type of loan.

With a simple promissory note, a single payment is made for the full amount. Installment notes require borrowers to repay the loan in agreed-upon installments. An on-demand promissory note requires the borrower to repay the loan at the time the lender demands it.

Finally, open promissory notes are lines of credit that the borrower can use and repay as the lender allows.

Types of promissory note

There are several types of promissory notes. They are classified largely based on the type of loan issued or the purpose of the loan. The following types of promissory notes are legally binding contracts.

I will pay personal

It is used to register a personal loan between two parties. Although not all lenders use legal briefs when dealing with friends and family, this helps avoid confusion and hurt feelings later.

A personal promissory note shows good faith on behalf of the borrower and provides the lender with recourse in the event that the borrower fails to repay the loan.

Commercial promissory note

A commercial promissory note is generally required with commercial lenders. Commercial notes are generally more stringent than personal ones.

If the borrower defaults on his loan, the commercial lender is entitled to immediate payment of the entire balance, not just the amount due.

In most cases, the lender in a commercial note can place a lien on the borrower's property until full payment is received.

Real estate promissory note

It is similar to a commercial note in that it often stipulates that a lien can be placed on the borrower's home or other property if it does not comply.

If the borrower defaults on a real estate loan, the collateral can become a public record.

Investment note

It is used frequently in a business transaction. Investment notes are made to raise capital for the business. They often contain clauses that refer to returns on investment for specific periods of time.

Examples

I will pay with guarantee

Suppose Alexis wants to make a new garage for her cars, because she doesn't have a place to park them. He approaches a bank to ask for a loan to build a small garage.

The bank analyzes their financial statements for the last few years and sees that they could approve a promissory note of $ 100,000 to be paid over the next 10 years.

In this case, Alexis needs to write the promissory note and offer the bank, with his signature, a promise to pay the full amount within 10 years.

In the promissory note the bank requests the house as collateral against the loan. Alexis keeps the house as collateral for the loan he has taken and then issues the promissory note to pay the debt within the stipulated term.

In this case, Alexis could lose his house if he cannot pay the money as promised.

I will pay informal

Mike and John are having a beer at the local pub when John mentioned that he needed to raise $ 1,000 to send his ex-wife at the end of the week, or he would be in trouble with the family court judge.

Mike offered to lend John the money, if John could pay it back by the 15th of the following month. John agreed. Mike grabbed a cardboard coaster and borrowed a pen from a waitress. He wrote the following on the coaster:

"I, John Smith, borrowed $ 1,000 from Mike Brown and promised to repay the full amount by March 15, 2019."

He had John sign the coaster and put it in his pocket. When John had failed to pay the money back in July and avoided committing to a payment agreement, Mike filed a civil lawsuit.

At the claims court trial, Mike delivers the note to the judge, with John's signature on it. The judge rules that the coaster is a valid contract and that John must immediately repay Mike the full amount of the loan.

References

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