Promissory Note or Contract – What’s the Difference?

Promissory Notes are Different from Contracts

Avoid Confusion-Understand the Difference

Contracts

A contract requires two parties to agree to its terms. The parties must exchange “consideration” (something of value) that binds both of them to perform a duty. Example: I pay you rent in exchange for you making an apartment available to me for living space. A contract needs to have bilateral or mutual consideration. This means both parties have to give something of value to each other in order for a contract to be valid.

Promissory Notes

Promissory notes are a special type of legal document. They are a created by statute (e.g., The Uniform Commercial Code). A note contains a promise to pay a fixed amount of money at a set time. There is no mutual or bilateral exchange of “consideration”. Promissory notes can work in conjunction with other documentation such as mortgages and security agreements which detail additional aspects of the underlying transaction. Example: When used in a real estate transaction, the promissory note covers the promise to repay the amount owed, interest, and maturity date – while the deed of trust or mortgage outlines the other responsibilities of the parties involved more precisely.

Key Terms

Two key legal terms used in the note are “promissor” and “promisee”. A promissor is a person who makes a promise to repay the money; the promisee is the person to whom the promise is made. The promisee is entitled to receive payment from the promissory.

Some notes are drafted that call the individual who promises to pay is the “maker or the borrower”, and the person to whom payment is promised is called the “payee or the holder or the lender”.

Because of these multiple identity options be certain to understand exactly who is to do what when investing in or transacting a note situation.

Promissory Note Basics

Promissory notes are negotiable instruments like checks: a promise by one person (or company) to pay another. They are…

Read More…. by Lawrence Tepper

The post Promissory Note or Contract – What’s the Difference? appeared first on Note Investing Seminars.

Promissory Note or Contract – What’s the Difference? published first on http://www.noteseminars.com/
Promissory Note or Contract – What’s the Difference? published first on http://www.noteseminars.com/