What is a Simple Promissory Note?

Solomon Branch

A simple promissory note is a basic agreement between two parties, referred to as the maker and the payee. The maker, will pay back a specified amount of money to the payee, or lender, on or before a specified date or when receiving a request from the payee to do so. This differentiates it from a simple IOU, which doesn’t specify a time period for payback of the borrowed amount. A simple promissory note usually is for a smaller amount of money and typically only requires very basic information.

A promissory note is an agreement between two parties indicating a maker's intention to pay a specified amount of money to a payee, or lender.
A promissory note is an agreement between two parties indicating a maker's intention to pay a specified amount of money to a payee, or lender.

Most simple promissory notes, referred to as a note payable in the accounting world, are used between friends, family, and for smaller business loans administered by banks. They are a minimal, basic agreement that typically includes at least the principle amount of the loan, any interest that will be added, and the date by which the loan needs to be repaid. Most promissory notes will add more pertinent information as well, such as addresses and social security or driver’s license numbers. Some will include extra conditions, such as what would occur if the maker dies or what will happen in the case of default. Regardless of what information is added, both parties need to sign for it to be binding.

Like loans, simple promissory notes can be secured or unsecured. Secured notes will include some type of property put up as collateral and are more often used in less-personal business arrangements. Unsecured notes do not have this requirement, and are more frequently seen between relatives or friends. Regardless, both secured and unsecured simple promissory notes are considered legal contracts if properly completed.

The origin of the simple promissory note has been traced back several thousand years. It has not changed all that much in that time except for perhaps the addition of the maker's and possibly the payee's address and other unique, identifying information. Throughout history, the simple promissory note has even been used in some countries and jurisdictions as legal tender, although it is not very prevalent today.

One advantage other than ease of using a simple promissory note is the availability of samples for download. Many legal sites have sample documents that are either very basic or specific to a local jurisdiction. Most downloads are free although if you want a more specific note, it might cost a small fee. When any money is being loaned, even between friends and family, there is no reason to not sign a simple promissory note. It can avoid confusion, anger, and possible legal expenses.

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Discussion Comments


Is an unsecured promissory note binding when a

married woman signs and her husband does not?


When purchasing our house through private sale, the owner drew up a promissory note, as the mortgage co. only loaned us about 95 percent of the money – a difference of $4,500. The owner added his legal fees, his appraisal fees, etc. to the promissory note. We only found this out the day before the sale closed (and we were living in the property already as renters, so did not want to move). This brought the sum up to $12,000?

I refused to sign this note, but my husband signed it anyway at 12 percent interest! There was no payment schedule included, and no contact number given to us to arrange payment. As a result, we had not paid in two years (despite attempts, we could not locate the lender.) We then received a letter after two years asking us to re-sign paper work making this note a "third mortgage" -- with the new balance owing of over $30,000, or we would be sued.

We contacted the original broker, who would not give us the lender's address or phone number. He did, however, produce a new agreement for us to sign, which we signed and made payments on for two years to the broker as the lender's agent. After another two years, the broker informed us that the lender was going to take us to court for default of payment. When we asked why, the broker informed us that he hadn't given any of the payments to the lender, because apparently the lender owed this broker a lot of money.

The original lawyer has since passed away, and this mortgage broker was fired from the place where he worked, and where we went to make payment. This firm has no records of any agreement made except for the original one, and no record of payments. They will not disclose why the broker was fired, either. Go figure, but i can guess...

Moral of this rant: do not be rushed into signing anything, do not use the same lawyer as lender and listen to your ranting, nagging wife when she tells you not to sign something suspicious!

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