promissory notes

A promissory note or promissory letter is a legal instrument similar in nature to any common law contract. In order for a contract to be enforceable, it must contain certain legal conditions such as an offer and an acceptance of that offer. Contracts indicate the type and amount of payment for services or goods rendered. In the case of a legal promissory note, the contract will be shaped around the amount of money or capital loaned and the terms of repayment of the promissory note.

As with any contract, the promissory note will contain all the terms and conditions associated with the agreement that have been established between the two parties. It will detail the total amount of money or capital loaned, the interest rate that is charged, and the timeline for repayment. When all of these conditions are addressed in the promissory note details and it is signed by both parties, the promissory note meets all the elements of a legally binding contract.

Promissory note forms can be crafted to address any type of lending situation, and as long as they are crafted with the necessary elements to fulfill the legal precedents of a contract, they are a legitimately binding legal instrument. Many promissory notes are crafted to cover simple agreements regarding the loaning of money from one person to another. They can also be used when an individual sells a vehicle to another person in a private transaction.

When money is loaned between individuals, most promissory notes act as a simple promise to pay. They do not have any collateral assigned that can be used to satisfy the note should the borrower default. Legal promissory notes used for the buying and selling of vehicles and other equipment can be secured through repossession of the vehicle or property should the borrower fail to fulfill the terms of the note.

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Whether or not a promissory note is secured with collateral or is unsecured and based solely on the promise to repay, the same principles of legality apply. If the borrower should default on the note and not be able to repay, the lender of a secured note can find relief by legally repossessing the property that was promised as collateral on the note.

If the note is for a monetary loan and is not secured, the lender has the legal authority to seek restitution through the court system and secure a judgment against the borrower. While this does not absolutely guarantee repayment of the promissory note, it does create a legal judgment against the borrower which can then be pursued through collection activity.
The other disadvantage to an unsecured promissory note or promissory letter is that if the borrower should file bankruptcy, creditors with secured interests will be repaid before any creditor with unsecured interests. This creates a possibility where the unsecured lender might not receive any repayment for the breach of agreement.

 There are two principal qualities essential to the validity of a note; first, that it be payable at all events, not dependenton any contingency; 20 Pick. 132; 22 Pick. 132 nor payable out of any particular fund. 3 J. J. Marsh. 542; 5 Pike, R. 441; 2Blackf. 48; 1 Bibb, 503; 1 S. M. 393; 3 J. J. Marsh. 170; 3 Pick. R. 541; 4 Hawks, 102; 5 How. S. C. R. 382. And, secondly,it is required that it be for the payment of money only; 10 Serg. & Rawle, 94; 4 Watts, R. 400; 11 Verm. R. 268; and not inbank notes, though it has been held differently in the state of New York. 9 Johns. R. 120; 19 Johns. R. 144. 

     6. A promissory note payable to order or bearer passes by indorsement, and although a chose in action, the holder maybring suit on it in his own name. Although a simple contract, a sufficient consideration is implied from the nature of theinstrument. Vide 5 Com. Dig. 133, n., 151, 472 Smith on Merc. Law, B. 3, c. 1; 4 B. & Cr. 235 7 D. P. C. 598; 8 D. P. C. 4411 Car. & Marsh. 16. Vide Bank note; Note; Reissuable note.

There are two principal qualities essential to the validity of a note; first, that it be payable at all events, not dependent on any contingency nor payable out of any particular fund. And, secondly, it is required that it be for the payment of money only and not in bank notes, though it has been held differently in the state of New York.A promissory note payable to order or bearer passes by indorsement, and although a chose in action, the holder may bring suit on it in his own name. Although a simple contract, a sufficient consideration is implied from the nature of the instrument.