Want to learn how to write a promissory note? In this article, you will find out what is a promissory note and a template…
A promissory note is a legally enforced document where one party promises to pay back the money received from the other party. The time of payment and the amount (whether in installments or in bulk) is decided by both the parties (or the party that gets paid).
Given that a promissory note is an agreement between two parties and it can be legally enforced, it can be considered to be a contract. And since it is a contract, due diligence must be given when forming a promissory note so that there is no ambiguity in understanding it whatsoever.
The note is drafted by the ‘promiser’, who promises to pay an amount of money in the future. The note contains all the details for payment like the amount of money, the interest component, the mode of payment and the date of payment. Suppose Johnny wants to buy raw materials for his business from Mike but currently hasn’t got the money. So if Mike trusts Johnny he will ask the latter to draft a promissory note acknowledging Johnny’s debt to Mike, the amount and the day he intends to pay it. Johnny and Mike will then negotiate the interest that Johnny would have to pay, the date on which Johnny will have to pay, along with the exact amount. Once all these details have been agreed upon, then Johnny will draft the promissory note and give it to Mike. Being a legally enforceable note, should Johnny not honor his promise at on the date of payment, Mike can drag him to court and demand payment.
A simple agreement involving a simple promise to pay ‘X’ amount on ‘Z’ date will require a simple promissory note. Amounts owed can be paid in installments, there can be an interest rate, the promisee can demand a witness, a security and even what happens to that debt in case of the death of the promiser. These can often carry a lot of money on them hence the promisee would like to pull all the stops. So here’s a sample in the name of the same two gentlemen mentioned above. You can delete portions of it which are not applicable to you and make it a simple template.
|Principal amount: $ 100,000
FOR VALUE RECEIVED, I, Johnny (Borrower) promise to pay Mike (Lender) the sum of One Hundred Thousand Dollars ($100,000), and interest at the yearly rate of 10 % on the unpaid balance as specified below.
Repayment shall be made in 5 monthly installments, consisting of $20,000 per installment on the 7th day of each month and continue through for 5 months, or until the principal is paid in full.
If I, Johnny, fail to make an installment payment when due or fail to comply with any other term of this promissory note, the loan will be considered in default. A late penalty charge of $200 Dollars per month will be assessed until the account is brought current inclusive of the late charges, interest and applicable fees.
I, Johnny, agree that until the principal and interest owed under this promissory note are paid in full, this note will be secured by the __________ (describe property, such as a car or a house.)
Payments will be applied first to interest and then to principal.
This note may be prepaid by me at any time in whole or in part without premium or penalty.
In the event of my death, the unpaid indebtedness remaining on the note shall be canceled.
If Mike prevails in a lawsuit to collect on this note, I will pay Lender’s court costs, collection agency costs, and attorney’s fees in an amount the court finds to be reasonable.
IN WITNESS WHEREOF, I set my hand under seal this __th day of ___, 20__ and I acknowledge receipt of a completed copy of this instrument.
Permanent Address: _________
Social Security Number: ______
Driver’s License Number: ___________
A promissory note can get pretty complicated, hence having a guide you is always a good idea. I sure hope this one helps! Feel free to use this template for chalking up a promissory note of your own.