A blank promissory note is an increasingly rare, though still used, form of securing repayment of loans and borrowings. In the era of express payday loans online, available with a minimum of formalities, loans under a promissory note still make sense, or is it better to avoid the risks associated with them?
The promissory note that had already expired a few years ago was one of the most popular forms of securing claims both among lending companies and banks (although the latter used bills of exchange mainly for high-value loans, such as mortgages).
What is a blank promissory note?
A promissory note is a type of security in which the person issuing the document (the trafficker) undertakes to repay the amount indicated to the person (remit) whose promissory note will be handed out.
A correctly issued promissory note contains the heading (title) ‘promissory note’ and the content that must appear:
- date and place of payment,
- date and place of issue of the document,
- debtor’s details,
- creditor details,
- bill of exchange amount (amount to be paid),
- exhibitor’s signature.
A blank promissory note (i.e. an incomplete promissory note) is a promissory note not supplemented with selected information.
For example, the paper may contain an empty field to enter the amount of debt (bill of exchange), date or addressee. Missing data may be entered by the holder of the bill of exchange (addressee) at the time of the premises to cash the document. If the issuer fails to comply with the terms of the contract, the resident may supplement the information necessary to use the promissory note, and then use the paper in court (and then enforcement) proceedings against the debtor.
The promissory note reduces the cost of debt enforcement.
The blank promissory note used to secure the loan or borrowing does not contain information on the amount of the bill of exchange at the time of issue. The amount of current debt (including interest) is entered by the creditor / lender when he wants to use the paper to recover the money borrowed, plus interest resulting from the contract.
The role of the bill of exchange declaration
The promissory note should be issued “in a package” with a promissory note declaration. This is a document in which the rules for filling in empty bills of exchange should be described in detail and precisely.
The declaration protects the interests of the debtors. If it had not been written, the creditor could enter any amount to be paid on the bill of exchange, then demanding its settlement.
Loan loans are a risk
Securing a loan with a promissory note poses a threat to the debtor. An dishonest creditor may supplement an excessive amount to be paid on the document, and then release the bill of exchange, i.e. sell it to another person or company. At the time of sale, the creditor’s rights are transferred to the new bill holder. He will have the right to demand payment of the amount visible on the document he has purchased.
A similar risk occurs when the borrower repays his debt completely and the creditor sells the promissory note to a third party. Why is that dangerous? The promissory note does not lose its validity after the expiry of the obligation it secured. Despite the repayment of the debt by the borrower to the lender, the new holder of the bill may demand payment of the amount from the bill. In this case, the law is on the side of the bill’s purchaser. His request could be dismissed only if the promissory note issuer proved that he was acting in bad faith when buying a promissory note.
Is it still worth borrowing for a promissory note?
A blank promissory note is a risk, so if you can, reach for a loan where this type of security is not required. However, it may turn out that the considered loan for a promissory note will be the only way out for you or will prove to be the most attractive financing proposal, e.g. it will be much cheaper than alternative offers. If for some reason you decide to take out a promissory note loan, remember to take precautionary measures that may protect you from financial loss.
To avoid the dangers of securing debts with a promissory note:
- issue a promissory note declaration in which you describe in detail the circumstances that allow the creditor to complete the missing data on the promissory note. The declaration should be made in two copies, signed by both parties,
- place an annotation on the bill of exchange regarding the preparation of the declaration . The note obliges the buyer of a promissory note to read the declaration, and thus learn the principles of monetizing paper. In the event of a dispute with a new promissory note owner, such preventive measures will allow you to prove the gross negligence of the promissory note buyer, which may weigh the scales on your side.