Professional Documents
Culture Documents
Promissory Notes PDF
Promissory Notes PDF
Promissory Notes PDF
Promissory Note
Pay to the order of language is sometimes found in promissory notes (e.g., this
type of language is seen on personal checks). When this type of language appears
in the promissory note (i.e. John Borrower promises to pay to the order of James
Lender the sum of … ), the person signing the note (called the maker) is agreeing
that he will repay the money to the lender or the person the lender designates to
receive the payments. In other words, the lender can loan the money to the
borrower and then direct that the borrower repay the loan to the lender or lender’s
wife, brother, friend or other person that the lender owes money to. This type of
language gives the lender flexibility in designating who will receive the payments
on the loan from the borrower.
Contracts for the payment of money, commonly referred to as bills and notes, are
governed by the ordinary law of contracts. However, where bills and notes have
the quality of being negotiable, they may also be subject to special legislation,
embodied in the Uniform Commercial Code, governing such instruments.
A Balloon Note is a Promissory Note that has one large payment (the balloon
payment) that is due upon maturity. A balloon note will often have the advantage
of a very low interest rate, thus requiring little capital outlay during the life of the
loan. The major problem with such a loan is that the borrower needs to be self-
disciplined in preparing for the large balloon payment due when the loan matures.
Of course refinancing the note upon maturity is always a possibility.
A note has two original parties – the maker and the payee. A draft or a check has
three original parties – the drawer, the drawee, and the payee.
The maker is the person who writes out and creates a promissory note. If I execute
a promissory note to you promising to pay you $100, I am the maker and you are
the payee.
The drawer is the person who writes out and creates a draft. This includes checks.
If I write a check to you for $100, I am the drawer; you are the payee; and my
bank is the drawee.
The drawee is the person to whom the draft is addressed and who is ordered to
pay the amount of money specified in the draft. This is a bank in most cases.
The payee is the person named on the face of the paper to receive payment. On
a check stating, “Pay to the order of John Jones,” John Jones is the payee.
The owner of commercial paper who signs the back of the paper is an endorser. If
the check is made payable to the order of John, John may indorse it to Mary to pay
a debt that John owes Mary. In this case, John, as the payee, is now also an
endorser.
A Promissory Note may be assigned in the same manner as any other contract
right.