Promissory notes—structure and parties
Produced in partnership with Ed Bellamy, Marta Bishop and Jad Hussain of Paul Hastings (Europe) LLP
Promissory notes—structure and parties

The following Banking & Finance guidance note Produced in partnership with Ed Bellamy, Marta Bishop and Jad Hussain of Paul Hastings (Europe) LLP provides comprehensive and up to date legal information covering:

  • Promissory notes—structure and parties
  • Parties to a typical promissory note
  • Structure diagram
  • Stages of a promissory note transaction
  • Limitation periods
  • Transferring promissory notes

A promissory note is a type of bill of exchange (for more information, see Practice Note: Bills of exchange—structure and parties) and accordingly governed by detailed provisions of the Bills of Exchange Act 1882 (BEA 1882).

BEA 1882, s 83(1) provides that a promissory note is:

'…an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or, to the order of, a specified person or to the bearer.'

Promissory notes are negotiable instruments which means that they can be transferred, either by delivery (if it is a bearer instrument) or endorsement and delivery (if it is payable to a specified person). They are similar to bills of exchange and are used widely in trade finance transactions where money is loaned to the maker of the promissory note. Whilst there are other differences, the essential difference between the two is that a promissory note is a ‘promise’ to pay by the maker of the note whereas an ‘ordinary’ bill of exchange is an ‘order’ for one party to pay another party.

This Practice Note looks at:

  1. the parties to a promissory note

  2. the usual stages of a transaction involving a promissory note

  3. limitation periods for promissory note transactions, and

  4. how a promissory