A promissory note is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate 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. Promissory notes 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.
Referred to as a note payable in accounting, or commonly as just a “note”, it is internationally regulated by the Convention providing a uniform law for bills of exchange and promissory notes. Bank note is frequently referred to as a promissory note: a promissory note made by a bank and payable to bearer on demand.
Historically, promissory notes have acted as a form of privately issued 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.
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.
Commonwealth
Consolidated Acts
BILLS OF EXCHANGE ACT 1909 - SECT 89
Promissory note defined
(1) A promissory note
is an unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay, on demand or at a fixed or
determinable future time, a sum certain in money, to or to the order of a
specified person,
or to bearer.
(2) An instrument in the form of a note
payable to maker's order is not a note
within the meaning of this section unless and until it is indorsed by the
maker.
(3) A note
is not invalid by reason only that it contains also a pledge of collateral
security with authority to sell or dispose thereof.
(4) A note
which is, or on the face of it purports to be, both made and payable within Australasia
is an inland note.
Any other note
is a foreign note.
Sample of a Promissory Note:
https://drive.google.com/file/d/0B21_coIgIYu2OTNoVWxlZXlsdWs/view?usp=sharing
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