Promissory Note

A written promise to repay a specified amount over a specified period of time.

A promissory note, referred to as a note payable in accounting, or commonly as just a "note", is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. They differ from IOUs in that they contain a specific promise to pay, rather than simply acknowledging that a debt exists. In common speech, other terms, such as "loan," "loan agreement," and "loan contract" may be used interchangeably with "promissory note" but these terms do not have the same legal meaning. Whereas a promissory note is evidence of a loan, it is not the loan contract, which would contain all the terms and conditions of the loan agreement. The terms of a note usually include the principal amount, the interest rate if any, the parties, the date, the terms of repayment (which could include interest) and the maturity date. Sometimes, provisions are included concerning the payee's rights in the event of a default, which may include foreclosure of the maker's assets. 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 are often instrumental for tax and record keeping. In the United States, a promissory note that meets certain conditions is a negotiable instrument regulated 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. Promissory notes, or commercial papers, are also issued to provide capital to businesses. However, Promissory Notes act as a source of Finance to the company's creditors. Historically, promissory notes have acted as a form of privately issued currency. In many jurisdictions today, bearer negotiable promissory notes are illegal because they can act as an alternative currency. The first evidence of a promissory note being issued is that which Ginaldo Giovanni Battista Stroxxi issued in Medina del Campo (Spain), against the city of Besançon in 1553 . However, there exists notice of promissory notes being in used in the Mediterranean commerce well before that date. Tradition has it that the first one ever was signed in Milan in 1325. There's constance of promissory notes being issued in 1384 between Genova and Barcelona, although the letters themselves are lost. The same happens for the ones issued in Valencia in 1371 by Bernat de Codinachs for Manuel d'Entença, a merchant from Huesca (then part of the Crown of Aragon), amounting a total of 100 florins . In all these cases, the promissory notes were used as a rudimentary system of paper-money, for the amounts issued could not be easily transported in metal coins between the cities involved. The various State law enactments of the Uniform Commercial Code define what is and what is not a promissory note, in section 3-104(d):. . . (d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this Article. Thus, a writing containing such a disclaimer removes such a writing from the definition of negotiable instrument, instead simply memorializing a contract.

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