Book Opener

“Neither a Borrower Nor a Lender Be”If you disregard this time-honored advice, as almost everyone does, use awell-drafted promissory note. When borrowing money from a bank, you willbe required to sign a promissory note. Banks typically use a standard form. Ifyou borrow from a friend or relative, then you’ll need to come up with yourown form. You can obtain fill-in-the-blank promissory note forms at most officesupply stores.It is well worth the effort to sign a promissory note when dealing withfamily members or friends, especially if you want to keep those relationshipsintact. Using a promissory note will help avoid misunderstandings about suchbasic things as how much is owed and when repayment is to occur. It is alwayswise to use a promissory note, even if the family member or friend insists onkeeping things informal.If you’re operating a business and you borrow money on its behalf, then itis important to know that partners and sole proprietors are always personallyobligated to repay a business loan. If your business is a corporation, then thebusiness is obligated unless you personally guarantee the loan.Research and Evaluation Visit a local bank or office supply store. Review thevarious promissory note forms. Which would you use to keep initial paymentsas low as possible?payee . When two persons sign a note, they are known as comakers.Creditors who loan money or extend credit ask debtors to sign notes asevidence of debt. An advantage of using a note is that it can be negotiated(transferred) to other people without much difficulty.There are various types of notes. A demand note is a note that ispayable when the payee demands payment (see Figure 23.1). In contrast,a time note is a note that is payable at a future date, which is written onthe face of the note. An installment note is a note that is paid in a seriesof payments. People often sign this type of note when they borrowmoney to buy a car or a house.Example 1. Keith bought a car from Laura’s Used-Car Exchangefor $4,900. He paid $1,000 down and signed a note promisingto pay the balance, along with interest at the rate of 18 percentChapter 23: Negotiable Instruments 507