Blank promissory note

What it means

A blank promissory note is a promissory note signed without all the mandatory details, usually the amount or the due date. The debtor signs it and hands it to the creditor together with a completion agreement setting out when and how the creditor may fill it in.

It serves as security for loans, leases, rentals or trade relationships. If the debtor fails to pay, the creditor completes the note under the agreement and can enforce it quickly in bill proceedings.

For the creditor the advantage is that the note is abstract: the underlying transaction need not be proved, the document itself suffices. A court can issue a bill payment order on it, which becomes an enforcement title.

How it works in practice

For leases or loans to smaller firms, banks and leasing companies often require a blank note signed by the company and guaranteed by aval from the director or a shareholder. An aval means an individual is also liable for the debt with personal assets.

The completion agreement should state precisely under what conditions and up to what amount the note may be completed. The debtor should always keep a copy, as it is key evidence in a dispute.

In the books a blank note given as security is not recorded as a liability, but it may be shown in off-balance-sheet records and disclosed in the notes as a contingent liability.

What to watch out for

The biggest risk is misuse: the creditor fills in the note contrary to the agreement, for example for a higher amount. The debtor must then object within a deadline that is very short for a bill payment order.

The law restricts the use of promissory notes with consumers, and businesses should be careful especially with avals. A director who guaranteed a note remains liable after leaving the company unless the aval is expressly cancelled.