What is a promissory note?

We explain what a promissory note is, the requirements that must be met to issue one and a model of this accounting document.

1. What is a promissory note?

It is known as promissory note to an accounting document that contains an unconditional promise of payment by a debtor or subscriber, in favor of another person (beneficiary or creditor).

The same document specifies the amount in which said payment will consist , the determined period of time that will be available to cancel the debt, and other similar conditions.

The name of this type of documents comes from its initial line, which commonly begins with “I owe and I will pay”, a voluntary declaration of obligations. This also distinguishes the letter or loan document: in which a promissory note is written and issued by the debtor himself , not by the beneficiary.

The origin of it, is in medieval times, with the rise of the bourgeoisie and early capitalism , as a form of a loan document that allowed disguising the collection of interests, an activity that Christian morals considered repudiable.

It is delivered to the creditor and remains in its possession until such time as it is presented to collect the debt. He will then receive the promised sum and deliver in return the document, which can only then be destroyed. It may also be the case that the creditor receives a partial sum of the amount due , but then he may withhold the promissory note until the rest of the debt is paid.

2. Promissory note requirements

For its validation, it must comply with the following:

• Mention that it is a promissory note . The contents of the document must expressly indicate that it is a promissory note, in the same language of the country in which it is signed and in a completely clear and legible manner.
• Unconditional promise of payment . A promissory note contains an unconditional promise of payment, that is, it makes explicit an obligation without mitigating, without conditions, which must count in the document. It is not always necessary to emphasize it, simply that the payment does not present any form of conditioner.
• Name of the beneficiary  and signature of the subscriber . The two parties involved, to whom the money and the debtor are owed, must be present in the document. The first with its full name explained, the second by signature and name at the end of the promissory note.
• Date and place of subscription . All promissory notes are signed in a place and time, and this must be stated in the document in order to establish their relationship with the expiration date and with the legal framework that will protect it (that of the country where it is signed).
• Expiration date . The due date is the date on which the amount due must be paid without delay. This date must be explicitly contained in the document.
• Transmissibility . It may be transmitted or endorsed to a third party, that is, to someone interested in “buying” the subscriber’s debt. Said endorsement must be totally and pure, without conditions, or partially.

3. Promissory note

The following may be a valid model of it:

I WILL PAY FOR VISION in ARGENTINE PESOS

The amount of $ ________

[Place and date of signature]

I will unconditionally pay the citizen ___________, bearer of the identity document number __________, or at his order the sum of [Amount in letters] Argentine pesos ($ [Amount in numbers]), for the same value received to my satisfaction. This promissory note will accrue compensatory interest from, and including, the date of its signature until, but excluding, the date of its full cancellation on day [expiration date]. Such interest shall be calculated at a rate of ______ percent (__%) nominal annual. This obligation in my charge must be paid in Argentine pesos for both capital and interest.