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September 23, 2019 9:18 pm by admin

Promissory Note


In international trade, Exporters and Importers often use  promissory notes in combination with letter of credits especially when deferred payment terms have been granted.

The promissory Note is a document within which the issuer (maker) gives an unconditional promise to pay the beneficiary a certain amount of money at a given time and place.

Therefore, the promissory note can be considered as both, a payment method and a credit tool since the payment does not take place right away but at an agreed time.

Since there is no need for the promissory note to be linked to a specific contract or transaction, this instrument works like an acknowledgement of debt. However, the fact that this debt instrument is normalised, makes it more enforceable.

Indeed, this instrument recognised internationally, is regulated by the “1930 Geneva Convention on bills of exchange and promissory notes”. The English common law legal system and the American Uniform commercial Code are globally in line with the Geneva Convention which makes the promissory note a payment tool that can be used internationally.

Even though, promissory notes and bills of exchange (covered here) are both regulated by the 1930 Geneva convention , they are two different tools that should not be conflated.

In order, to be valid the content of the promissory note must be written in one language and contains the following elements:

  • The term “ Promissory note ”  must clearly appear in the body of the document 
  • An unconditional promise to pay a given sum of money
  • The time of payment
  • The place where the payment must be made
  • The name of the beneficiary of the payment
  • The date and place where the Promissory has been issued
  • The Signature of the issuer (called the Maker)
  • The sentence ‘Bon Pour Aval’ with the signature of the guarantor (only if there is a guarantor)

If any of the conditions below are not met, the promissory note is deemed to be invalid except in the following cases.

Absence of time payment

If the time of payment is not specified, the payment is considered to be at sight. The “at sight” payment modality means that the payment must be made whenever the beneficiary claim it.

Absence of place of issuance

If the place where the title has been issued is not provided, it is deemed to have been issued in both the place of payment and the domicile of the maker (issuer).

Moreover, when place of issuance is missing the address which appears beside the name of the maker is deemed to be the address where the title bas been made.

This tool is also used when a creditor allows his debtor to repay his debt by instalments. In this case, the debtor will issue a promissory note for every periods in which a payment is due to his creditor.


The other advantage of this debt instrument is its negotiability which is to say that it can be transferred  and discounted. This point is extremely important as this means that the creditor has many options such as endorsing the draft , waiting for payment at maturity, discounting the document against cash.

Example : An Importer must pay  50 000 EUR to his supplier which agreed to grant him a 60 days payment terms. In this case, the importer will issue a promissory note within which he will give the unconditional promise to pay the 50k to the beneficiary (the supplier) in 60 days.

In short, in a promissory note you have 2 parties involved

The maker (or the drawer):

The drawer is the debtor who issue the commercial title for paying his creditor by giving the unconditional promise to pay a given sum at a given date.

The Beneficiary (or the payee)

The Beneficiary is  usually the creditor who has been designated for receiving the payment and to whom, the debtor (the issuer) owes money. However, since the promissory note is a negotiable title , its ownership can be transferred at any other party . Therefore the beneficiary is often referred to as the bearer which is the one who will present the draft for payment at maturity

This transfer of ownership is referred to as endorsement. By endorsing the  promissory note, the beneficiary surrenders all the rights which results from the ownership of the promissory note to the a new beneficiary.

For more on endorsement click here  

Failing to respect the conditions of validity of  the promissory note is not a trivial subject . Indeed, while a valid promissory note is a commercial paper, an invalid one makes the contract paper an acknowledgment of debt.

Again, in case of a commercial dispute, the enforceability of the promissory note engagement is easier to obtain since this contract is normalised. In other words, Judges will only check if the content of the promissory note is regular and order the execution.

However, it must be pointed out that this instrument does not prevent payment default in case of solvency issue of the debtor.  At the end of the day, this is the quality of the debt-asset that matters regardless of the type of instrument that you use.

In order to prevent such events, it might be worthwhile considering asking for guaranties by requiring for a third party (usually a Bank)  to issue an “Aval”.

By doing so, the guarantor becomes liable and bounded in the same manner as the debtor and therefore he will have to honour the payment obligations in case of solvency issue.

The mention ‘Bon pour Aval’ as well as the signature of the guarantor must appear on the promissory note


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