WHAT IS A PROMISSORY NOTE?
A promissory note is a legal document that acts as evidence of a borrower’s indebtedness and their unconditional promise to pay back the lender. The promissory note generally sets out information about the lender and the borrower, the principal amount of the loan, the interest rate payable, details about payments, maturity date, and interest adjustment date. In our experience, promissory notes are used in smaller loans where there is a level of trust between the lender and the borrower. Promissory notes are generally simple to draft and do not cost a lot in legal fees. In situations where a borrower signs a promissory note in favour of the lender unless the lender obtains collateral from the borrower to ensure repayment of the loan, the typical recourse for the lender upon default by the borrower will be limited to a court action for collection of the debt. While there is no requirement that a promissory note be drafted by a lawyer or witnessed, we recommend that the promissory note be both drafted by an experienced real estate or business lawyer and witnessed in front of an impartial third party.
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.