PROMISSORY NOTE IN MODERN COMMERCIAL PRACTICE.
A Promissory Note is a legal document that sets out the details of a loan made between two people, a borrower and a lender. See BELOXXI & COMPANY LIMITED & ANOR v.SOUTH TRUST BANK & ORS (2014) LLER -89412 CA. The note clearly outlines the borrower’s promise to fully repay the lender within a specified amount of time. It includes all the terms and conditions of the loan transaction and ensures the parties have a thorough and complete written record of the deal and their intentions. As such, the note should be finalized before any money changes hands. The document also acts as a formal record of the transaction.
In SOUTH TRUST BANK & ORS V. PHERANZY GAS LIMITED & ORS (2014) LLER -12212 CA, the Court of Appeal held that “The Promissory Note is not only a bill of exchange but a distinct commitment provided as security for the loan agreements. It is not discharged by the loan itself being discharged by any party other than the borrower. The commitment to pay the principal sums of the loan agreements and the rate of interest accruable therein is an unconditional one assignable by an endorser as if it was the original issuer of the Note”.
A promissory note is also referred to as Debt Note, Demand Note, Commercial Paper or Notes Payable. Promissory note can be used as a legal document in transactions relating or bothering on personal loans between family members, friends, and colleagues, Student loans, Real estate loans, property down payments, or mortgages, Automobile, vehicle, or car loans, Bank, commercial, business, or investment loans.
There are two types of promissory notes; Secured promissory note and unsecured promissory note. Secured promissory note is used when the borrower to agree to give up property in case he defaults to pay up the loan being the consideration of the promissory note. Borrower can secure the loan with a real estate property, jewelries, shares, bond, etc. Unsecured promissory note on the other hand is used when the borrower did not have a property to give up in case of default or decided not to give us his property. In a situation where the borrower default in an unsecured promissory note, the lender always charge higher interest or take legal steps to recover the loan from the guarantor (if any).
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Promissory note like every other legal documents is drafted by lawyers. There is no defined way of drafting it. However, there are some certain clauses that must be clearly stated;
- The details of the parties (both lender and borrower)
- Payment plan of the loan
- Consideration (Principal sum borrowed and interest)
- Default Clause
- Guarantors or cosigner (not necessary)
- Notarization (not necessary)
- Date and proper execution
In the modern commercial practice,promissory note can serve as a substitute for money, can be given as a gift, can be bought by debt recovery agents or companies and can be used to purchase items at grocery stores.
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