Promissory Notes

 

What:

A Promissory Note (also known as “note” or “negotiable instrument”) is a written statement  that evidences that money is owed to you by the author (also known as “maker”) of the statement.  You can transfer the note to other people who can then demand payment from the person or entity that owed money to you originally.  Your attorney might say  that  the note is “negotiable.”  Another benefit of a note:  You can enforce the note in court without further evidence of the underlying reason why money was owed to you in the first place.  You also don’t have to worry that the debtor will raise issues in court based on the underlying transaction, since the court won’t consider any of those issues.

If you want to look up the code that governs promissory notes in New York look here:
Article 3 New York Uniform Commercial Code.

When:

Promissory notes are often given (“issued”) in the context of loans or other financings.  For example, when you buy a business, the seller may finance the purchase price for you by letting you pay in installments.  At the closing of the business sale, the seller will most likely demand a promissory note from you covering the outstanding amount of the purchase price of the business.

How:

You need:

  • Something in writing from the debtor.
  • The writing must be signed by the debtor.  “Signed by the debtor” includes methods other than original signatures, such as email signatures, symbols and so forth as long as the debtor had the intention of signing the writing (see Section  1-201(39) New York Uniform Commercial Code).
  • The writing must state that your debtor unconditionally promises to pay to you a certain amount of money at a certain time or upon demand by you.  Other than the promise to pay, there are very few other obligations by the debtor allowed in a promissory note.  If your debtor insists on inserting provisions beyond the  promise
    to pay into the promissory note, be sure to consult with your attorney.
  • Even though a promissory note is considered a contract, it does not require the signature of the creditor in order to be enforceable.

 

 

 

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027.

8 comments

  1. I have a music production company and recently registered an LLC but I think I want to change it to a regular INC. how can a change the status of my company. I have not yet ublished my LLC in any papers, but I have opened a bank account

  2. I received a judgement on a promissory note in my favor (lender). But, defendant refuses to pay…how can I collect my money?

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  7. The need to use promissory notes never arose but it was definitely enlightening to know what Promissory notes are and when and how we should use it. I’m now well informed, thanks for sharing such an important information.

  8. Short and Sweet ! this is what the first thing came into my mind after reading your post ! :)

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