Promissory Note is a negotiable security containing a written commitment. Promissory note is the debtor’s promise to pay. Unlike a bill of exchange at which the debtor orders to pay to the third party. This is the simplest type of bills - only between two entities.
Promissory note is a promise of issuer - drawer to pay the amount to the payee and usually has the following information:
- Indication that it is a promissory note
- Unconditional order to pay a certain pecuniary money
- Due date of the promissory note
- Indication of the place where the bill is to be paid
- Name of the payee - the person to whom should be paid
- Date and place of its issuance
- Signature of the drawer
Note: The promissory note may not be in the prescribed form, regardless of the size of the paper. If the promissory note contains mentioned elements, it becomes valid even if it had been written on wrapping paper.
What is for and how is used promissory note in practice?
Promissory note gives the owner the right to require the payment of the sum on the bill within the specified period. It is ideal for collateral of smaller credits. It is used in practice as collateral or security for better enforcement of obligations or loans.