Recognize promissory notes and how they operate.

Every debt requires a record with which nothing contradicts the agreed terms between two parties. Thus, the promissory note was designed as an alternative for all parties to keep at ease and to know everything agreed on.

But do you know how it works and how it should be filled out? There are correct ways to do this process and it is important to know them so that the document does not lose its validity.

Therefore, in this article, we bring you all the information you need to clear up any doubts you may have about promissory notes and avoid making mistakes.

What is a promissory note?

In short, a promissory note is a formal legal document that certifies the promise to pay a debt; therefore, it is used for formalizing the payment agreement between two parties, either natural or legal persons.

How does a promissory note work?

A promissory note can be looked at as a record of debt with a promise made by the debtor.
This document has a legal basis and can be brought to court when it is completed and signed correctly;
In the issued document, there must be information about the issuer (person who takes over debt), and the beneficiary (person receiving the agreed sum).
Furthermore, the beneficiary keeps that document until the payment. Thus, if the issuer fails to pay his debt within the time frame stated, then an action against such debtor may be performed.

Importance and utility of promissory notes in the market

Promissory note is very important in the market for its simplicity and effectiveness as a credit instrument.

In effect, it formally formalizes financial commitments quickly and safely facilitates transactions relating to commerce, credit, and finance.

In this regard, a promissory note is found to be useful both to business and individuals since it provides an unequivocal means of recording debts and obligations legally.

In addition, considering the modern alternatives for payment that are in existence, the use of promissory notes is still very prevalent for businesses seeking short-term financing and formalizing business agreements.

Learn about the types of promissory notes

There are basically two types of promissory note:

Promissory note pro-soluto

• In this type, the payment is irreversible. That is, once issued, the debt cannot be undone;
• Payment is mandatory on the due date, regardless of any additional conditions of the beneficiary.
• If the debtor does not pay, the creditor does not have to return the note;

Example

Suppose a property sale with the buyer undertaking to fully pay on the agreed date without resorting to any other condition.

That is, the buyer obligates himself to pay the totality, fictitious amount of R$500,000.00, on the fictitious date agreed with the seller for September 30, 2024. To this end, he issues a promissory note pro-soluto in favor of the seller.

In this light, once the promissory note is issued and accepted, the commitment to pay becomes definite. The buyer cannot withdraw from his decision as he may regret or ask for cancellation of his note.

Further, in case the buyer does not pay within the due date, the seller may protest the promissory note, without returning the note to the buyer, and seek judicially the enforcement of the debt.

In reality, the conditional characteristic of the pro-soluto promissory note actually makes the payment agreement unconditional, thereby guaranteeing greater legal security to the seller.

Promissory note pro-solvendo

• Here, the payment is reversible. In other words, the deal can be undone if the debt is paid off before the due date;
• The debtor is not automatically obliged to pay on the due date; the beneficiary must formally notify him;
• If the debtor pays first, the creditor must return the note as proof;
• It is more flexible and can be used in debt renegotiations.

Example

Consider a situation where a supplier sells goods worth R$50,000.00 on credit to a retail store. To guarantee payment, the store representative issues a promissory note due in 60 days (also a fictitious term).

In this case, the pro-solvendo promissory note implies that payment is conditional upon fulfillment of the original obligation (the sale of the goods). If the store fails to pay on time, the supplier is not limited to the amount of the note alone.

After all, in the event of non-payment, the supplier can protest the promissory note and, in addition, seek to satisfy the debt through other goods or assets of the store’s legal representative, or return to collecting the main obligation (the value of the goods sold).

In short, the pro-solvency note offers an additional layer of security to the creditor, allowing multiple avenues for debt recovery.

Promissory note: step by step to fill out

Filling out a promissory note is a procedure very simple and fast. Just follow along:

Step 1-Identification parties

First, at the top of the document, identify the parties: the issuer is the debtor and the beneficiary is the creditor. You must insert full names, CPF number, address, as well as other relevant information.

Step 2-Amount, date and place of issuance

State the total amount of debt, date-by-date month and year and place issuing the promissory note.

Step 3 – Due date

Set the date (day, month and year) on which the payment must be made.

Remember that the due date can be fixed (pro-soluto) or subject to notification (pro-solvendo).

Step 4 – Specific clauses

Then add specific clauses if necessary. For example, interest, late fees, payment terms, etc.

Step 5 – Signatures

The issuer (debtor) must sign the promissory note. And, if there is a guarantor, include his/her signature.

According to decree No. 2,044 , notarization of a promissory note is not required.

Step 6 – Witnesses (optional)

For greater legal security, it is possible to include witnesses with their signatures.

Legal requirements for a valid promissory note

For a promissory note to be valid, it must meet the following requirements:

Explicit mention

The content of the document must expressly indicate that it is a promissory note, in the same language as the country in which it was signed and in a completely clear and legible manner.

Unconditional promise of payment

Furthermore, the promissory note must contain an unconditional promise of payment, that is, it makes explicit an obligation without extenuating circumstances, without conditions, which must be stated in the document.

Name of beneficiary and signature of debtor

Both parties involved, the one to whom the money is owed and the debtor, must be present at the document. The first only with their full name explicitly stated, the second by signature and name at the end of the promissory note.

Date and place of signature

Every promissory note is signed in a place and at a time, and this must be recorded in the document in order to establish its relationship with the due date and with the legal framework that will protect it (that of the country where it is signed).

Expiration date

Finally, the due date or maturity date must be clearly stated. It represents the deadline for payment of the debt.