Home » Finance

Types Of Promissory Notes

Mar 26, 2008
Promissory notes are used to record details of a loan transaction between two or more parties. They are used in a variety of financial and real estate transactions, business loans, and personal loans between family members and friends.

It's important to realize promissory notes are legal contracts and can be used against you in a court of law. Before signing any agreement, it's essential to understand the different types of promissory notes and how they are used.

Types of Promissory Notes

The most common types of promissory notes include those used to document personal loans between family members or friends. Most people shy away from requesting legal documentation when lending money to personal acquaintances. While it's understandable you don't want to offend someone you care about, promissory notes can actually help prevent misunderstandings.

When friends and family draft a personal promissory note it demonstrates a good faith effort on behalf of the Borrower. It also creates a sense of security for the Lender. Personal promissory notes can be purchased at office supply stores or downloaded from the Internet. The note should include the terms of the loan, amount borrowed, interest rate and what consequences will occur if the Borrower defaults on the loan.

Commercial promissory notes are used when money is borrowed from a bank or other lending institution. Commercial notes are similar to personal notes; however, they include additional legal terms and more stringent conditions.

Typically, when a Borrower defaults on a commercial promissory note, the lender has the right to demand full payment. If you owe $3,000 and default on your payment, the signed promissory note gives the Lender the power to demand the entire balance. If you do not pay the full balance, the Lender can then place a lien on the property you are financing. They can also file a lawsuit to obtain the balance or regain possession of the property. Not only will you lose the property, it will significantly impact your credit rating.

Some organizations use promissory notes to raise capital for business. This type of business note is referred to as an Investment promissory note. The note is issued to investors in exchange for the loan. Investment notes guarantee investors will receive a return on their investment within a specified period of time.

Negotiable promissory notes are used to secure real estate transactions. These notes are governed by the Uniform Commercial Code. Real estate promissory notes must adhere to conditions set forth by the National Conference of Commissioners on Uniform State Laws.

Personal promissory notes are simple documents and can usually be drafted without the assistance of a lawyer. Commercial, Investment and Real Estate Notes will require the services of lawyer to ensure they are legally binding.

Legal Terms

Should you decide to draft a promissory note without legal counsel, it's wise to become familiar with the terminology used. Basically, there are five legal terms used in promissory notes including:

Promisor - The person who is obtaining the loan and who will be obligated to repay it.

Promisee - The person who is providing the loan and who will receive payment for it.

Obligor - The person who is bound by the legal agreement; usually the Promisor.

Obligee - The person to whom the Obligee is bound; usually the Promisee.

Mutual Consideration - When there is a contract between two parties there must be some value received by both parties. This is referred to as "mutual consideration".
About the Author
Simon Volkov is a private real estate note investor who specializes in helping individuals liquidate their assets. From forthcoming Inheritance windfalls to outstanding Promissory Notes, Simon Volkov offers a host of solutions for those in need of cash. Learn more about by visiting www.SimonVolkov.com.
Please Rate:
(Average: 5.0 stars by 1 user)
Views: 225
Print Email Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources