Draft Promissory Note

Promissory Note (سند أذني / Billet à Ordre)

When to use this

A promissory note is an unconditional written promise by one party (the Maker) to pay a fixed sum of money to another party (the Payee) or their order, on demand or at a specified future date. When properly drafted, it is a negotiable instrument — it can be transferred by endorsement, sued on without proving the underlying obligation, and enforced summarily in most jurisdictions.

Use this skill when:

• Formalizing a straightforward loan obligation between two parties
• A lender wants a standalone instrument separate from the loan agreement (for ease of enforcement)
• Acknowledging existing indebtedness in a legally enforceable form
• Part of a transaction package (e.g., a promissory note as a component of a real estate transaction)
• Creating an instrument that a Payee can discount, transfer, or use as collateral

A promissory note is simpler than a full loan agreement — use [[draft-loan-agreement]] when the transaction requires covenants, representations, events of default, security arrangements, or syndication.

Mandatory elements for negotiable-instrument status

Per the Geneva Convention on Bills of Exchange and Promissory Notes (and most civil-law commercial codes derived from it), a promissory note must contain:

If any mandatory element is missing: the instrument may lose its status as a negotiable promissory note and become merely an ordinary acknowledgment of debt — enforceable as a contract but not summarily enforceable as a bill of exchange.

Optional provisions

Interest

• State the rate: "[X]% per annum, calculated on the outstanding principal from [Issue Date] until payment in full"
• Basis: "on a 365/actual-day basis" or "30/360" — specify to avoid calculation disputes
• Compounding: "interest shall not compound" (default for simple notes) or specify if interest compounds
• KSA caution: see Jurisdictional notes — interest should be characterized as a "profit charge" or "administrative fee" in KSA-governed instruments

Default interest

• "If the principal or any interest is not paid on its due date, default interest shall accrue on the overdue amount at [X]% per annum above the stated rate" from the due date until actual payment

Acceleration clause on default

• "If the Maker fails to pay any amount due hereunder on its due date and such failure continues for [5] business days, the full outstanding principal and all accrued interest shall, at the Payee's option, become immediately due and payable without further notice or demand"

Cross-default

• "Any default by the Maker under [the Loan Agreement / any other financial obligation to the Payee] shall constitute a default under this Note"
• Cross-default provisions are appropriate when the promissory note is one component of a broader financing; otherwise they add complexity without benefit

Joint and several liability (multiple makers)

• "Each Maker is jointly and severally liable for the full amount of this Note"
• The Payee can pursue any one Maker for the full amount; that Maker's right to contribution from the others is separate

Endorsement / transfer

• "This Note is transferable by endorsement and delivery"
• OR: "This Note is non-transferable without the Maker's prior written consent"
• If no endorsement restriction is included, the note is freely transferable as a negotiable instrument

Waiver of presentment, demand, protest

• "The Maker hereby waives presentment, demand, notice of dishonor, and protest"
• These formalities (traditional requirements for enforcing bills of exchange) are commonly waived in commercial promissory notes; verify whether the governing law requires specific waiver language

Governing law

• "This Note shall be governed by and construed in accordance with the laws of [jurisdiction]"

Jurisdiction / enforcement

• "[Courts of [jurisdiction]] shall have exclusive jurisdiction for disputes arising from this Note"
• OR: "This Note may be enforced in any court of competent jurisdiction"
• Consider including attorney's fees provision: "In any action to enforce this Note, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs"

Jurisdictional notes

Anti-patterns

• Vague IOU language: "I, [Name], owe [Other Name] USD 100,000" — does not constitute a negotiable promissory note; becomes only a contractual debt acknowledgment; no summary enforcement
• Conditional promise: "I will pay USD X when the project is completed" — destroys negotiability; the condition must be satisfied before a court can enforce
• Omitting the unconditional promise: "I intend to pay USD X on [date]" — "intend" introduces uncertainty; use "unconditionally promise to pay"
• Incorrect rate calculation: specifying "5% interest" without stating the basis (per annum, per month, simple, compound, day-count) leads to disputes
• UAE criminal exposure: taking a promissory note from a counterparty who may not have funds to pay — investigate the Maker's financial position first; criminal dishonor is a serious risk in UAE commercial practice

Document template (core)

PROMISSORY NOTE

[City, Country], [Date]

FOR VALUE RECEIVED, [Maker Full Name / Company Name, a [company type] incorporated in 
[jurisdiction] with registration number X] (the "Maker") HEREBY UNCONDITIONALLY AND 
IRREVOCABLY PROMISES TO PAY to the order of [Payee Full Name / Company Name] (the 
"Payee") the principal sum of [CURRENCY AND AMOUNT IN WORDS] ([Currency Symbol][Amount 
in Figures]), together with interest at the rate of [X]% per annum on the outstanding 
principal, from the date hereof until paid in full.

This Note shall be due and payable on [MATURITY DATE / ON DEMAND].

Payment shall be made to [Payee bank account details / Payee's address] in immediately 
available funds in [Currency].

This Note is governed by the laws of [Jurisdiction].

IN WITNESS WHEREOF, the Maker has executed this Note on the date first written above.

MAKER:

________________________
[Full Name]
[Title, if corporate]
[Company Name, if corporate]
[Date]

[Witness or notarization block if required by jurisdiction]

Related skills

• [[draft-loan-agreement]]
• [[draft-guarantee]]
• [[draft-mortgage]]
• [[draft-security-agreement]]