Promissory Notes Wilmington NC

PROMISSORY NOTES

Contracts for the payment of money, commonly referred to as bills and notes, are governed by the ordinary law of contracts. However, where bills and notes have the quality of being negotiable, they may also be subject to special legislation, embodied in the Uniform Commercial Code, governing such instruments.[FN1]

In 1990, Article 3 (formerly "Commercial Paper") of the Uniform Commercial Code, which is now entitled "Negotiable Instruments," was substantially revised.[FN1] While prior to the 1990 revisions, Article 3 applied to both negotiable instruments and nonnegotiable paper,[FN2] the focus of Article 3 is now restricted to negotiable instruments.

A negotiable instrument is a contract, and the fundamental rules governing contract law are applicable to the determination of legal questions that arise concerning negotiable instruments. However, a negotiable instrument may be distinguished from an ordinary contract by the fact that a negotiable instrument may be drafted in such fashion as to give it the quality of negotiability.[FN3] This quality of negotiation allows the instrument to pass freely as a substitute for money by holders in due course, regardless, with rare exceptions, of the defenses that might arise between the original parties who drafted the negotiable instrument.[FN4]

Promissory Notes a negotiable promissory note is an unconditional promise in writing made by one person to another, signed by the maker, promising to pay on demand or at a definite time a sum of money to a specific person or to "bearer."

A Balloon Note is a Promissory Note that has one large payment (the balloon payment) that is due upon maturity. A balloon note will often have the advantage of a very low interest rate, thus requiring little capital outlay during the life of the loan. The major problem with such a loan is that the borrower needs to be self-disciplined in preparing for the large balloon payment due when the loan matures. Of course refinancing the note upon maturity is always a possibility.

PARTIES TO COMMERCIAL PAPERA note has two original parties - the maker and the payee. A draft or a check has three original parties - the drawer, the drawee, and the payee. Commercial paper may also have one or more of the following: acceptor, endorser, endorsee, bearer, accommodation party, and guarantor.

Maker
The maker is the person who writes out and creates a promissory note. If I execute a promissory note to you promising to pay you $100, I am the maker and you are the payee.

Drawer
The drawer is the person who writes out and creates a draft. This includes checks. If I write a check to you for $100, I am the drawer; you are the payee; and my bank is the drawee.

Drawee
The drawee is the person to whom the draft is addressed and who is ordered to pay the amount of money specified in the draft. This is a bank in most cases.

Payee
The payee is the person named on the face of the paper to receive payment. On a chec...