a written promise by a person (variously called maker, obligor, payor, promisor)
to pay a specific amount of money (called "principal") to another (payee, obligee,
promisee), usually to include a specified amount of interest on the unpaid principal
amount (what he/she owes). The specified time of payment may be written as a) whenever
there is a demand, b) on a specific date, c) in installments with or without the
interest included in each installment, d) installments with a final larger amount
(balloon payment). A promissory note may contain other terms such as the right of
the promisee to order payment be made to another person, penalties for late payments,
a provision for attorney's fees and costs if there is a legal action to collect,
the right to collect payment in full if the note is secured by real property and
the property is sold ("due on sale" clause), and whether the note is secured by
a mortgage or deed of trust or a financing statement (a filed security agreement
for personal collateral called UCC-1). The promissory note is usually held by the
party to whom the money is owed. There are legal limitations to the amount of interest
which may be charged. Charging a rate in excess of the legal limit is called "usury,"
and this excess is legally uncollectible. When the amount due on the note, including
interest and penalties (if any), is paid, the note must be cancelled and surrendered
to the person(s) who signed it. A promissory note need only be signed and does not
require an acknowledgement before a notary public to be valid.
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