A promissory note is the promise in written, to pay a sum to a certain person or the bearer on demand or on a date that has been specified beforehand. It is a legal document and implies the person or institution who has signed it to pay a certain amount of money to the aforesaid person at a time that has been predetermined or on the demand of the aforesaid person. This note can be unconditional and salable to be known as negotiable instrument.
Laws of many states consider promissory notes as a common means of carrying out transactions. The countries that allow deferred payments have provisions of promissory notes. If the company is fearing insolvency due to deferred payments they can ask one of their borrowers to write a promissory note to them which will enable the lender to get the cash against the promissory note. This cash can then be used to solve the insolvency. However, the borrower is now suppose to pay a certain amount as per the one mentioned on the note, to the bank, failing which the bank may return to the lender for the money. In this way the promissory note is a kind of money that is used by the institutions privately.
The promissory note must contain the principal amount, interests, the names of both the parties, the date of payment, the terms of repayment and the date of maturity upon which the bank may ask for the lent money.
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