The promissory note: a payment and credit tool to be mastered

By Yasmine EDDAM22 April 2025

A promissory note may seem like a financial instrument reserved for insiders. However, this binding document is more common than you might think in business life, particularly for organising deferred payments between business partners. It is a written promise by which one person (the subscriber) undertakes to pay a specified sum of money, on a specific date, to another person (the beneficiary).. Simple in appearance, its handling is governed by precise legal rules derived mainly from the French Commercial Code.. Misunderstanding these mechanisms can have significant consequences.

The aim of this article is to explain how promissory notes work. We will look at its main characteristics, the conditions under which it is valid, the payment procedure, the guarantees that may accompany it and the outcomes in the event of difficulty. Mastering these aspects is important for securing your transactions and using this tool wisely.

What is a promissory note and what is it used for?

To understand this, let's imagine a supplier granting its customer a payment term. Rather than simply mentioning this on the invoice, the customer can issue a promissory note, thereby formalising his promise to pay the amount due, for example, within 90 days. This is a firm commitment.

The promissory note therefore fulfils an essential function of supplier credit. It enables the debtor to obtain an extension of the payment period and the creditor to have a clear document certifying his claim.. It is also sometimes used to mobilising credit The beneficiary of the note can pass it on to his own bank (by endorsement) to obtain a cash advance before maturity.. A special case is that of "fund notes", used at the time of the sale of a business to spread out the payment of the price..

Unlike bills of exchange, which initially involve three parties (the drawer, who gives the order, the drawee, who must pay, and the beneficiary), promissory notes require only two: the subscriber (the person who promises to pay) and the beneficiary (the person who will receive payment).. This structural simplicity does not prevent a degree of legal complexity.

The legal status of promissory notes is defined in Articles L. 512-1 to L. 512-8 of the French Commercial Code.. However, the law very often refers to the rules applicable to bills of exchange (articles L. 511-1 et seq. of the same code) for many aspects such as endorsement, maturity, payment, recourse, etc.. It is therefore necessary to navigate between these different provisions, bearing in mind the specific features of promissory notes.

An important new feature of the "Attractiveness" Act of 13 June 2024 is the explicit recognition of the possibility of drawing up, signing, transferring and storing a promissory note in electronic form, under conditions that ensure its reliability and integrity.. This is a major step towards the dematerialisation of this instrument.

The essential features of promissory notes

To be legally valid and fully effective, promissory notes must comply with a number of conditions, in terms of both form and substance.

Conditions for creating a valid promissory note

First of all, the promissory note must be a writes. Traditionally drawn up on paper, it can now, as mentioned above, be drawn up in electronic form under certain conditions. The authenticated form (before a notary) is rare but may be used, for example, if the note guarantees a mortgage or when selling a business.. In most cases, it is a private deed..

Concerning capacity of the person making the commitment (the subscriber), the classic rules apply. You must have the legal capacity to enter into an obligation. If the commitment relates to a commercial activity, commercial capacity is required; otherwise, civil capacity is sufficient.. A note subscribed by an unemancipated minor would be null and void, for example, even if there were indications of a commercial consideration.. Nullity on the grounds of incapacity can only be invoked by the incapable person himself.. However, the invalidity of the signature of the incapable person does not affect the validity of the commitments of any other signatories (endorsers, guarantors), by virtue of the principle of independence of signatures..

The ticket can be issued by a representative an agent, a company manager or a financial director acting on behalf of the company. To avoid any ambiguity, it is essential that the signatory clearly indicates that he is acting "by proxy" ("PP") or in his capacity as legal representative (e.g. "The Manager"), ideally by affixing the company stamp.. A signature affixed without specifying the capacity of the signatory could bind the latter personally.. However, case law allows the company's undertaking to be valid if the signatory was acting as an apparent agent, i.e. if the beneficiary could legitimately believe that he had the power to bind the company, unless the company proves that it was not involved in this appearance.. A holder acting in good faith is generally not required to systematically check the signatory's powers of attorney..

Mandatory information: a checklist to make sure you don't forget anything

Formality is king when it comes to commercial paper. Article L. 512-1 of the French Commercial Code lists seven items that must appear on the instrument for it to qualify as a promissory note. Forgetting even one of these details can have serious consequences.

The term "promissory note" or "promissory clause Title: The title must contain either the expression "promissory note" inserted in the text itself, or indicate that the payment will be made "to the order of" such and such a person. This statement is essential and distinguishes the promissory note from a simple writing.
A pure and simple promise to pay a specific sum The subscriber must undertake unconditionally to pay a specific amount. A conditional promise does not count as a promissory note. The amount must be clearly stated, in figures and/or in words. In the event of a difference, the sum in words prevails (reference to article L. 511-4 C. com.). A stipulation of interest is only possible for notes payable at sight or within a certain period of sight.
Indication of maturity The date on which payment must be made must be specified. There are several possibilities: at sight (payable on presentation), at a certain sight date (e.g. "at 30 sight days"), at a certain date (e.g. "at 60 sight days"), or at a fixed date (e.g. "on 31 July 2025"). If no maturity date is indicated, the note is considered to be payable on demand.
Indication of the place where payment is to be made Address: This is the address where the bearer must present the note to obtain payment. It may be the subscriber's home address or another location, such as a bank (direct debit).
The name of the person to whom or to whose order the payment is to be made This is the original beneficiary. His or her name must be clearly indicated. A note cannot be "bearer"; it must designate a specific person. The subscriber cannot designate himself as beneficiary.
The date and place where the ticket is purchased The creation date is essential, as its absence invalidates the security as a promissory note. It is used to calculate certain deadlines and to verify the capacity of the subscriber at the time of issue. The place of issue must also be stated.
The signature of the person issuing the security (the subscriber) : This is the fundamental commitment. This signature must be handwritten on a paper note. A simple stamp or seal is not sufficient. Several people may jointly subscribe to a note, in which case they are jointly and severally liable.

What happens if one of these details is missing? The instrument loses its status as a promissory note and no longer benefits from the protective rules of the exchange system (specific rules on circulation, payment and recourse).. However, it does not lose all its value. Depending on the case, it can be used as :

A simple promise to pay subject to the ordinary law of obligations.
A prima facie evidence in writing if the conditions of article 1376 of the Civil Code are not met (for civil deeds).
A bearer note if only the name of the beneficiary is missing, but the regime is different.

However, there are legal substitutes under the French Commercial Code :

A non-maturity note is payable on demand.
If no place of payment is indicated, the place of creation is deemed to be the place of payment and the policyholder's domicile.
If no place of creation is indicated, the ticket will be considered to have been subscribed at the place designated next to the subscriber's name.

Regularisation a posteriori is sometimes allowed, for example if a missing entry is completed before presentation for payment, by mutual agreement between the parties.. Similarly, if the name of the subscriber and that of the beneficiary are identical (which is not normally permitted), the endorsement of the note to a third party regularises the situation by designating that third party as the beneficial owner..

Clauses that can be added (optional clauses)

In addition to the mandatory information, the parties may insert other clauses in the promissory note, provided that they are not incompatible with its nature.. The most common are :

La mention of the "value provided A reminder of the reason for the commitment (e.g. "value received in goods"). Common in promissory notes.
La direct debit clause This specifies that the payment will be made to a third party, usually a bank. It is very common and often facilitates computerised processing (BOR - Billet à Ordre Relevé).
La free of charge" or "free return" clause It exempts the bearer from having a protest drawn up in the event of non-payment in order to preserve his rights of recourse against the guarantors.
L'downstream This is a payment guarantee given by a third party (or another signatory) for the benefit of one of the obligees (usually the subscriber). We'll come back to this later.
La no warranty" clause An endorser can insert it to pass on the note without guaranteeing payment.

On the other hand, certain clauses are impossible or have no effect on a promissory note, such as the "not acceptable" clause (since the note is accepted by nature as soon as it is subscribed) or the "not to order" clause, which would distort it..

Promissory note: civil or commercial?

This is a significant difference from the bill of exchange. While a bill of exchange is always considered to be a commercial transaction in form, regardless of the person signing it or its cause, a promissory note is not automatically commercial..

Its nature (civil or commercial) depends on the cause of engagement or the capacity of the subscriber. It will be commercial if :

It is taken out in connection with a commercial transaction (e.g. purchase of goods for resale).
It is taken out by a trader for the needs of his professional activity.

In other cases (e.g. loans between individuals, payment of fees to a self-employed professional), the promissory note is a civil deed..

Today, this distinction has fairly limited practical consequences. It mainly affects :

La capacity required for the policyholder (civil or commercial).
La jurisdictional competence If the note bears at least one commercial signature (commercial underwriter or endorser acting on behalf of his business), the commercial court has jurisdiction for all actions relating to the note, even against non-commercial signatories. If there are only civil signatures, the court of first instance has jurisdiction.

It should be noted that even a non-trading company can be brought before the Commercial Court if it has endorsed a promissory note issued by a trading company in which it is a director and has a personal property interest in the transaction..

Promissory note payment: how does it work?

Payment is the normal outcome of the life of a promissory note. A number of questions arise: what are the guarantees for the bearer? When and where should payment take place? Can it be opposed?

Specific guarantees (and those that are missing)

The promissory note offers certain securities to the beneficiary, but it lacks two key mechanisms of the bill of exchange:

No formal acceptance In a bill of exchange, the drawee (the person who must pay) must formally accept the order to pay by signing the bill. This acceptance makes him the principal debtor. In a promissory note, the subscriber is committed from the outset as principal debtorThis is done in the same way as an acceptor of a bill of exchange (article L. 512-6 C. com.). There is therefore no acceptance stage as such.
No provision The provision, in the bill of exchange, is the claim that the drawer has on the drawee, the ownership of which is transferred to successive bearers. This concept does not exist in promissory notes, since the drawer and the drawee are one and the same in the person of the subscriber. The bearer therefore does not benefit from this specific security. However, case law has sometimes reasoned by analogy, for example by considering that funds deposited with the domiciliary bank with a view to payment could be the subject of a special assignment.

Despite these shortcomings, the promissory note offers other guarantees:

Legal solidarity All those who signed the note (underwriter, successive endorsers, guarantors) are jointly and severally liable to the bearer (article L. 511-44 C. com., applicable by reference from L. 512-3). This means that the bearer, in the event of non-payment on the due date, may claim the full amount from any of the signatories, without having to follow a specific order. This joint and several liability applies even if the deed is a civil deed. An endorser may, however, be exempted from this guarantee by inserting a "no guarantee" clause in the endorsement. The subscriber, on the other hand, cannot exempt himself from the payment guarantee.
Downstream Guarantee: This is a very important contractual guarantee for promissory notes, given the lack of provision and the fact that circulation is often more limited than for bills of exchange. A guarantee is an undertaking by a person (the guarantor) to pay the note in place of one of the signatories (the guaranteed party) if the latter fails to do so.
- Who can give an endorsement? A third party, or even another signatory to the note (except the subscriber himself, as he is already the principal debtor). The guarantor must have the required capacity (civil or commercial, depending on the commitment guaranteed).
- How do you give an endorsement? The endorsement must be made on the banknote itself (or on an extension) or by a separate document indicating the place where it is given. It is expressed by the formula "bon pour aval" or an equivalent formula, followed by the handwritten signature of the underwriter. A simple signature on the front of the note (other than that of the subscriber) constitutes an endorsement. The endorsement must indicate for whom it is given; otherwise, it is deemed to be given for the underwriter.
- What are the downstream effects? The avaliste is required to in the same terms as the one it guarantees (article L. 511-21, al. 7 C. com.). His undertaking is cambiary: he cannot set up against the bearer in good faith any personal defences that he may have against the endorsed party or that the endorsed party may have against the subscriber (principle of non-enforceability of defences). However, the avaliste may raise any defences that the avalisé may raise. directly to bearer (e.g. payment already made by the endorsed party). The liability of the guarantor is autonomous: he remains liable even if the obligation of the guaranteed party is null and void for a reason other than a formal defect (e.g. incapacity of the guaranteed party). Unless expressly limited, the endorsement guarantees the entire amount.
Transmission of guarantees by endorsement When a promissory note is transferred by endorsement, the new holder (endorser) acquires not only the claim under the note but also all the rights attached to it, including the securities that may have guaranteed the original claim (e.g. the lien of the seller of a business if the note is a fund note). Endorsement also activates the joint and several guarantee of the previous endorsers and the underwriter. The legitimate bearer benefits from the unenforceability of defences, unless he has acted knowingly to the detriment of the debtor (bad faith).

Due date and place of payment

Payment must be requested at maturity on the ticket. The holder cannot demand payment before this date (except in the case of forfeiture of the term linked to the initial contract, but this only affects the subscriber and not the other guarantors). ) and the policyholder cannot compel it to receive payment in advance.

A special rule applies to the ticket payable within a certain period. For the time limit to start running, the ticket must be presented to the visa of the subscriber within one year of its creation date (unless a different deadline is set on the security). The payment period runs from the date of the endorsement issued by the policyholder.. If the subscriber refuses to date his visa, or refuses to give it, his refusal must be recorded by a protest, the date of which will serve as the starting point for the time limit for sight.. Failure to comply with this time limit for presentation of the visa will result in the bearer losing his rights of recourse against the endorsers and guarantors, but not against the subscriber..

Payment must be claimed from location indicated on ticket. If there is no specific indication, it is the place of creation, which is also deemed to be the subscriber's domicile.. If the note is domiciled at a bank, it must be presented at that bank.. For computer-processed raised promissory notes (BORs), there is no physical presentation of the security; the information circulates electronically via the clearing system..

The policyholder must be able to pay on the due date. They cannot benefit from no grace period for payment of the cambial obligation (article L. 511-81 C. com.).

Can I object to payment?

Objection to payment of a promissory note is very strictly regulated by law, as is the case for a bill of exchange (article L. 511-31 C. com.). It is only permitted in certain limited circumstances:

In the event of loss of the ticket.
In the event of collective proceedings (receivership or compulsory liquidation) opened against the bearer of the ticket.

Any other stop payment is ineffective and does not release the policyholder from his obligation to pay the rightful holder. In particular, it is not possible to stop payment on the grounds of the original contract (e.g. a dispute over the goods delivered), unless the holder is the original beneficiary or a holder acting in bad faith.. In the same way, the claim incorporated in the note is considered to be exempt from seizure by its very nature.. A creditor of the beneficiary cannot therefore seize the policyholder to block payment to the bearer..

What happens in the event of non-payment?

If the subscriber fails to pay on the due date, the holder has recourse to obtain the sum due. But they must act quickly and in accordance with precise procedures to avoid losing their rights.

Recourse by the holder

In the event of non-payment on the due date, the bearer may take recourse against all the signatories to the note: the underwriter, the successive endorsers and the guarantors, who are jointly and severally liable.. He may act against them individually or collectively, without being obliged to comply with an order..

Appeals may also be lodged before maturity in certain serious situations affecting the policyholder (assimilated to the drawee of the bill of exchange in these cases):

Its receivership or compulsory liquidation.
Its cessation of payments, even if not established by a court judgment.
An unsuccessful seizure of his assets.

To maintain its recourse against endorsers and their guarantorsIn the event of non-payment, the bearer must have the non-payment recorded by a protest for non-payment. This is a document drawn up by a bailiff or notary. The protest must be drawn up within the legal time limit (generally within the working days following the due date). If this is not done, the bearer is said to be "negligent" and loses his rights of recourse against his guarantors..

However, failure to lodge a protest shall not result in the loss of rights against :

Le underwriter.
L'policyholder's advisor.

The latter remain liable because they are the principal debtors or guarantee the principal debtor, and cannot therefore rely on the negligence of the bearer..

The protest is not not necessary (or is impossible) in certain cases:

If the note contains a "return free of charge" or "no protest" clause. The bearer is then exempt from the protest but must present the ticket for payment on time to avoid being negligent.
In the event of receivership or liquidation of the policyholder. Filing the claim with the court is sufficient.

The holder must also provide notice of default to its own endorser and other guarantors within a short period of time (generally 4 working days after the protest or presentation) to inform them of the situation and allow them to make their arrangements.

Holders exercising their rights of recourse may claim:

The unpaid amount of the ticket.
Interest at the legal rate from the due date.
Costs of protests, notices and other expenses incurred.

Negligence on the part of the bearer and prescription

As mentioned above, a bearer who does not perform the required acts within the time limits (presentation for payment, protest if necessary) is considered to be careless. The penalty is severe: he is deprived of its Cambodian rights against the endorsers and their guarantors. He only retains a right of action against the subscriber and his creditor..

In addition to negligence, actions related to promissory notes are subject to the following conditions limitation periods fairly short (article L. 511-78 C. com., applicable by reference):

The holder's action against the underwriter (and its avalist) is prescribed by 3 years from the expiry date.
The holder's action against the endorsers (and their endorsements) are prescribed by 1 year from the date of the protest (or the due date in the case of a "no cost" clause).
The actions of the various guarantors (endorsers, endorsers) with each otherafter payment, are prescribed by 6 months from the day on which they themselves redeemed the ticket or from the day on which they were summoned to court.

These time limits are specific to the action cambiaire. Once these time limits have expired, the bearer (or the guarantor who has paid) can no longer act on the basis of commercial paper law. However, this does not necessarily extinguish the original claim (that which gave rise to the note). The creditor retains the right to take action against his direct debtor on the basis of the original claim. basis of the fundamental relationship (e.g. contract of sale, loan contract), this action being subject to the ordinary law limitation periods (generally 5 years in commercial or civil matters since the 2008 law, but longer periods may have applied previously)..

Managing promissory notes can raise complex issues in practice. If you want to secure your transactions or assert your rights in the event of non-payment, our firm can help. Contact us for an analysis of your situation.

Sources

Commercial Code, articles L. 511-1 et seq (provisions relating to bills of exchange applicable by reference)
Commercial Code, articles L. 512-1 to L. 512-8 (specific provisions for promissory notes)
Law no. 2024-537 of 13 June 2024 aimed at increasing business financing and the attractiveness of France (for the electronic promissory note)