Legal Definitions - Note

A Note, often referred to as a promissory note, is a formal written document where one party makes an unconditional promise to pay a specific amount of money to another party by a certain date or upon demand. It serves as a legally binding record of a debt.

This document typically details the exact terms of repayment, including:

• The principal amount borrowed
• The interest rate
• The schedule for payments (e.g., monthly, quarterly)
• The maturity date (when the full amount is due)
• Any grace periods for late payments
• The consequences or penalties for failing to make payments (default)

A note can be secured by collateral (like property) or unsecured, meaning it relies solely on the borrower's promise to pay.

Examples:

• Personal Loan Between Individuals: Imagine Sarah lends $10,000 to her friend Mark to help him purchase a used car. To formalize the agreement, they draft and sign a promissory note. This note states that Mark unconditionally promises to repay Sarah the $10,000, plus 5% annual interest, in monthly installments over two years, starting the following month. It also specifies that if Mark misses three consecutive payments, the entire outstanding balance becomes immediately due.

  How this illustrates the term: This is a written, unconditional promise from Mark to Sarah to pay a specific sum ($10,000 plus interest) by a clearly defined schedule (monthly over two years). It outlines the payment terms and the consequences of default, making it a legally enforceable record of the debt.

• Small Business Funding: A startup company, "GreenTech Solutions," needs $50,000 to develop a new eco-friendly product. They secure this funding from a private investor, Ms. Rodriguez. In return for the investment, GreenTech Solutions issues a promissory note to Ms. Rodriguez. The note promises to repay the $50,000 with 7% annual interest, with quarterly payments over three years. It also includes a clause stating that if GreenTech Solutions is acquired by another company before the note matures, the full amount becomes payable immediately.

  How this illustrates the term: Here, the note is a formal written promise from GreenTech Solutions to Ms. Rodriguez to pay a specific sum ($50,000 plus interest) by a set schedule (quarterly over three years). It details the payment terms and specific conditions under which the debt must be repaid, serving as a binding agreement for the loan.

• Student Loan from a Private Lender: When David takes out a private student loan from a bank to cover his university tuition, he signs a promissory note. This note obligates him to repay the bank the borrowed amount, plus a variable interest rate, starting six months after his graduation, over a fifteen-year period. The note specifies the repayment schedule, the interest calculation method, and the fees for late payments or deferment options.

  How this illustrates the term: David's signature on the promissory note signifies his unconditional written promise to pay a specific sum (the loan amount plus interest) to the bank by a specified time (over fifteen years, starting post-graduation). It clearly lays out all the terms of his debt obligation, making it a legally binding agreement.