Promissory Note

What is a promissory note?

A written commitment to pay someone is known as a promissory note. The promise-maker is referred to as the payer, and the recipient of the payment is referred to as the payee.

Your commitment to pay is not contingent upon the occurrence of any specific events or the taking of any specified actions since the promise to pay is an unconditional promise. As per these notes:

• The amount that must be paid
• When payment is due, interest will be assessed, if applicable.
• Any additional conditions of the loan

Types of promissory notes

• Personal Promissory Notes:Loans from family or friends are known as personal promissory notes. Although many people avoid legal documents when asking a close friend or relative for a loan, the promissory note demonstrates trust and confidence in the borrower's best interests.
• Commercial:In this case, the statement is made about commercial lenders like NBFCs. The majority of commercial promissory notes resemble personal notes.
• Investments:A promissory note may occasionally be used to raise money for a company. Securities laws regulate its use for security purposes. It contains clauses that deal with investment returns.
• Real estate:In terms of the repercussions of non-payment, this is comparable to commercial notes. The party has the authority to keep the collateral until the loan is paid if the borrower defaults. It carries some risk because all the pertinent information is made public, which may harm the borrower's credit history going forward.

Parties of the promissory note

There are three main stakeholders in all promissory notes.

• Drawer: A drawer is the one that promises to give the drawee a specific sum of money when the promissory note matures. Another name for him or her is the creator.
• Drawee: The person for whose benefit the note is written. Unless a promissory note is formally transferred in the payee's favor, the drawee often doubles as the payee.
• Payee: The recipient of a payment is referred to as a payee.

Features of a promissory note

• Written/Printed Agreement - An oral promise to pay money is not recognized as a promissory; it must be in writing.
• Pay Defined Amount - This is a promise to pay a certain amount of money at a specified time or upon demand. The aforementioned sum cannot be increased or decreased.
• Signed Documents - The document have to officially signed, drawn, and stamped by the drawer
• Unconditional Promise -In all circumstances, the commitment to pay a specific sum of money must be unwavering. A conditional promise is not recognized in such notes.
• Legal Composition -All payments must be made in the official currency of the country.
• Detailed Information -The note contains all the necessary information, such as the payee's and drawer's names, the note's issue date, the drawee's name, and signature, the principal amount, the interest rate, etc.