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Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

A 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, in the United States , at a fixed or determinable future time, a sum certain in dollars to order or to bearer."

Consideration 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 United States notes are monetary forms of promises to pay on demand without interest, and furnish a part of the circulating monetary medium.  A note may be drawn without interest, but if it is drawn with interest with the rate omitted, the maximum legal rate of the state in which it is made is presumed.

One 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.

Notes 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.

Formerly 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.

Classified 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:  "On July 1, 1981 , I promise to pay"; the second reads:  "Sixty days after date, I promise to pay."  In the second case, the note must be "timed" in order to determine the maturity date, and in this timing the exact number of days must be counted.  For example, if a note is dated July 20 and runs for 60 days, it becomes due on September 18.  If that date happens to be a Sunday or holiday, then the note is due on the next business day.

Banks 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


New 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.

It 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.

Payable at the ____________________________________________________________ Bank.

No. _________________________ Due __________________________________________


(Name of maker)


A 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


The 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:


(here 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.



The term note also is sometimes applied to short-term bonds whether corporate or civil issues, especially if unsecured, e.g., United States Treasury notes.  

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