In a promissory note, the person to whom money is promised is known as the payee, also referred to as the drawee. This individual or entity is the recipient of the payment outlined in the note.
Understanding the Promissory Note
A promissory note is a written promise by one party (the maker or borrower) to pay a definite sum of money to another party (the payee or lender) at a specified future date or on demand. It is a fundamental financial instrument, commonly used in various transactions, from personal loans to business dealings.
The Key Parties Involved
To fully understand who money is promised to, it's essential to recognize the two primary roles within a promissory note:
The Payee (Drawee)
The payee is the individual or entity who is entitled to receive the payment. They are the lender in the transaction, waiting for the promise made by the other party to be fulfilled. Essentially, they are the beneficiary of the note.
- Role: The person to whom the debt is owed.
- Receives: The specified sum of money.
- Benefit: The right to demand payment as per the note's terms.
The Promisor (Drawer/Maker)
Conversely, the person who issues the promissory note and makes the promise to pay a certain amount is called the promisor, also known as the drawer or maker of the note. This party is the borrower who owes the money.
- Role: The person who makes the promise to pay.
- Owes: The specified sum of money.
- Obligation: To fulfill the payment terms outlined in the note.
Clarifying the Relationship
The relationship between the promisor and the payee is central to a promissory note. The promisor incurs a debt and formally promises to settle it with the payee. This written promise provides legal recourse for the payee should the promisor fail to uphold their end of the agreement.
Key Roles in a Promissory Note
Role | Definition | Key Action/Responsibility |
---|---|---|
Payee | The person or entity to whom money is promised | Receives payment; holds the right to collect the debt |
Promisor | The person or entity making the promise to pay | Issues the note; obligated to make payment |
Practical Examples and Importance
Consider these scenarios to grasp the roles better:
- Personal Loan: If Jane lends money to Mark and Mark signs a promissory note, Mark is the promisor (owing the money), and Jane is the payee (the person money is promised to).
- Business Transaction: A small business might sign a promissory note to a supplier for a large order. The business is the promisor, and the supplier is the payee.
Understanding these roles is crucial for anyone involved in financial transactions, as it clarifies who has the right to demand payment and who is obligated to make it. This clarity helps prevent disputes and provides a clear legal framework for debt repayment.
For more detailed information on promissory notes, you can refer to reputable legal and financial resources like Investopedia's definition of a promissory note.