What Is a Promissory Note (Safteh)?

What Is a Promissory Note

A promissory note is considered a non cash payment instrument under which the issuer undertakes to pay a specified sum of money, either on a fixed and definite date or without a date, payable on demand or to the order of a specific person or to the order of another designated individual. The phrase payable to order means that the amount stated in the promissory note is payable either to a named person or to any individual to whom that person has transferred the note. For example, it may be issued payable to Hossein or to the order of the person to whom Hossein has endorsed the note.

Formal and Mandatory Requirements for the Validity of a Promissory Note

How Can a Promissory Note Be Obtained?

The safest way to obtain a promissory note is through a bank. Today, promissory notes may also be purchased from newspaper kiosks. However, caution is advised, as such notes may be counterfeit or sold at inflated prices, sometimes even higher than bank issued notes. When a promissory note is obtained from a bank, these concerns are eliminated.

How Is the Price of a Promissory Note Calculated/

Each promissory note has a specified amount known as its nominal value, which is printed on the form itself. The payable amount written on the note may not exceed this printed nominal value. For example, if the promissory note has a nominal value of two million tomans, it may only be used for obligations up to that amount. The cost of issuing a promissory note is calculated based on its nominal value. For a one million toman promissory note, the issuance fee is approximately five hundred tomans. For higher amounts, the fee increases proportionally. For instance, a five million toman promissory note requires a payment of approximately two thousand five hundred tomans.

Mandatory Legal Requirements of a Promissory Note

Pursuant to Article 308 of the Commercial Code, certain essential conditions are required for a promissory note to be legally valid. One of the most important requirements is that the note must be completed on the official designated form. Mandatory information includes the issuer’s signature and seal, the amount payable, the payee, and the payment date. Other information, such as the place of payment, is not mandatory, and its omission does not affect the validity of the promissory note.

What Information Must Be Included in a Promissory Note?

After signing and sealing the promissory note, the issuer must include several items of information, some of which are mandatory and others optional:

• First and last name of the payee.
• First and last name of the issuer.
• Signature and seal of the issuer.
• Date of issuance of the promissory note.
• Amount payable.
• Date of payment.
• Place of payment.
• Tax stamp.
• Residential address of the issuer.

What Happens If the Required Regulations Are Not Observed?

• If a promissory note lacks a signature and seal, it does not even possess the validity of an ordinary document.
  If no date is stated, the promissory note is considered payable at sight, meaning the date of presentation is deemed the date of issuance.
• If the place of payment is not specified, the place of issuance is deemed the place of payment.
• If the place of issuance is also omitted, the promissory note does not lose its overall validity but is no longer considered a commercial instrument and is treated as a civil document. In such cases, the location written next to the issuer’s name is deemed the place of issuance.
• If the promissory note is intended to be payable to a specific person, that person’s name must be clearly stated. Otherwise, the note will be treated as payable to bearer.

Legal Liability for Non Payment of a Promissory Note and Necessary Collection Measures

In general, non payment of a promissory note is not considered a criminal offense. Unlike a check, it does not carry criminal liability. The holder of a promissory note may file a claim before the civil courts if payment is not made. The holder must present the promissory note for payment on its maturity date. If payment is not made, the holder must issue a formal protest within ten days from the maturity date, thereby officially notifying the issuer of the non payment.

This protest must be formally served on the issuer. Protest forms are typically available through the Ministry of Justice, and banks also provide printed protest forms. The protest document must include a complete copy of the promissory note and reference the payment order issued by the court.

Issuing a protest is necessary to benefit from the legal advantages of commercial instruments, such as compensation for delay in payment and provisional seizure of assets prior to the issuance of a final judgment. It should be noted that it is still possible to claim the amount of the promissory note without these formalities. In such cases, however, the promissory note is treated as an ordinary document rather than a commercial instrument, and the claim will not be criminal in nature.

What Is an Employment Promissory Note?

Today, many companies and institutions require employees, at the time of hiring, to provide a promissory note as a form of guarantee and assurance of proper performance of duties. A common concern among employees is the potential enforcement of these notes. However, such concern is generally unfounded, as these promissory notes are not issued for payment purposes but solely as a guarantee of proper performance. Accordingly, an employer may not enforce the note unless it can prove that the employee has failed to fulfill contractual obligations.

Frequently Asked Questions About Promissory Notes