promise to pay as distinguished from an order to pay, such as a draft
or check. Formally defined,
a note is a written promise of the maker to pay a certain sum of money
to the person named as payee, on demand or at a fixed or determinable
future date. The Board of
Governors of the Federal Reserve System has defined a promissory note
as "an unconditional promise, in writing, signed by the maker, to pay,
is always deemed prima facie to exist in the case of NEGOTIABLE INSTRUMENTS,
and lack of consideration between the original parties is not a defense
against the HOLDERS IN DUE COURSE.
Notes may be issued by individuals, partnerships, corporations,
institutions, and governments. Federal
Reserve notes and
of the essential characteristics of notes is that they are ordinarily
negotiable, i.e., superior rights may be vested in the holder in due course.
Negotiation is achieved by delivery, i.e., handing it from one
person to another, when the note is made payable "to bearer" or where
the endorsement is "in blank," or by endorsement and delivery when it
is made payable "to order." A
note will be nonnegotiable if the words of negotiability, "bearer" or
"order" are omitted from its face.
should be presented for payment at the place named.
If no place is indicated, presentment should be made at the maker's
usual place of business or residence during business hours.
The note should be presented on the due date in order to hold the
endorsers (if any) liable; in case of refusal to pay, protest should be
made. The liability of the
maker is in no way voided by postponement of presentation beyond the due
date, and the note may be protested for non-payment even if past due.
When a bill or note is lost, destroyed, or wrongly detained from
the person entitled to hold it, protest may be made on a copy or on written
particulars thereof, so that loss of a note will not affect the rights
and liabilities of the parties.
three DAYS OF GRACE were allowed to persons obligated to pay notes, i.e.,
three days beyond the indicated maturity date.
Under the NEGOTIABLE INSTRUMENTS LAW and Uniform Commercial Code,
this practice was abolished so that an instrument matures on the date
which it fixes.
by methods of determining maturity, notes are of two forms:
payable upon a specified date or payable a certain number of days
after a fixed date. The first
is known as a "fixed date" note and the second as a "days after date"
note. The first reads:
frequently furnish customers blank forms for notes and usually insist
upon their own forms to evidence loans extended to their borrowers.
The following is a form of a promissory note without collateral
where the payee is a bank.
A Promissory Note Without Collateral
York, __________________________ 19 __________ $ ______________________
months (days) after date for value received I (we) promise to pay to the
Bank on order, the sum of ________________________________ Dollars, with
interest at _____ centum per annum.
is further agreed that if the undersigned shall become insolvent or make
a general assignment for the benefit of creditors, or file a voluntary
petition in bankruptcy, or if a petition in bankruptcy shall be filed
against the undersigned, or a receiver shall be appointed over the property
or assets, or any thereof, of the undersigned, then this note and all
other present or future demands of any and all kinds against the undersigned,
whether created directly or acquired by assignment, whether absolute or
contingent, shall for with be due.
at the ____________________________________________________________ Bank.
_________________________ Due __________________________________________
collateral note ordinarily has the same form as the regular promissory
note (above illustrated), together with the following or its equivalent.
A Promissory Note with Collateral
undersigned has deposited with said bank as collateral security for the
payment of this and any and every liability or liabilities of the undersigned
to the said bank direct or contingent, due or to become due, or which
may hereafter be contracted or existing, the following property:
the specific collateral is described)
together with all other securities in the possession of said bank belonging to the undersigned or in which the undersigned has an interest, hereby agreeing to deliver to said bank additional securities to its satisfaction, upon demand of said bank, also hereby giving to said bank a lien for the amount of all said liabilities of the undersigned to said bank upon all property and securities which now are or may hereafter be pledged as collateral with said bank by the undersigned, or in the possession of said bank in which the undersigned has an interest, and also upon any balance of the deposit account of the undersigned with said bank. On the non-performance of this promise, or upon the non-payment of any liabilities above mentioned, or upon the failure of the undersigned forthwith to furnish satisfactory additional securities on demand, at the option of said bank, this obligation shall become immediately due and payable, and then and in every such case, full power and authority are hereby given to said bank to sell, assign, and deliver the whole or said securities or any part thereof or any substitutes therefore or any additions thereto through any stock exchange, or broker or at private expressly waived, or said bank itself may purchase the same or any part thereof free from any right of redemption on the part of the undersigned, which is hereby expressly waived and released. In case of sale for any cause, after deducting all costs and expenses of every kind, said bank may apply the residue of the proceeds of such sale, as it shall deem proper, toward the payment of any one or more of all of the liabilities of the undersigned to said bank, whether due or not due, returning the over-plus, if any, to the undersigned, who agrees to be and remain liable to said bank for any and every deficiency after application as aforesaid, upon this and all other of said liabilities, the undersigned hereby authorizing the transfer or assignment of said securities and property to the purchaser thereof. And I hereby authorize any attorney-at-law to appear in any court of record in the United States, after the above obligation becomes due, and waive the issuing and service of process and confess a judgment against me in favor of the ____________________________ Bank of ___________________________________ or any holder of this note, for the amount then appearing due together with the costs of suit, and thereupon to release all errors and waive all right of appeal and stay of execution.
term note also is sometimes applied to short-term bonds whether corporate
or civil issues, especially if unsecured, e.g., United States Treasury