A promissory note is a document promising that one party will pay another party a specified sum of money either on a specified date or on request. They are fairly simple documents including basic information such as the sum involved, period of the loan, amount of interest to be paid and penalties payable in the event of default.
A promissory note is a legally enforceable agreement. Provided the terms of the document are not found to be unfair and that the document contains the information outlined above a court will uphold a note.
A well-drafted promissory note is a legally enforceable contract. It will include the amount and length of the loan, interest payable and penalties to be occurred if repayment is not made as agreed. Provided these elements are clearly included and the terms and conditions are found to be fair then a promissory note can be viewed as a binding contract.
A promissory note differs from a mortgage in that it will not usually specify regular repayments. It also tends to be a less detailed, less onerous document and may not include the right of repossession in the event of default. Only a borrower is required to sign a promissory note whereas both borrower and lender will execute a mortgage deed.
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