What is Promissory Note?
A promissory note is a written, unconditional promise made by one party (the maker or issuer) to pay a specified sum of money to another party (the payee) on demand or at a defined future date, signed and dated by the maker.
How It Works
- Two parties: maker (debtor) and payee (creditor).
- Includes principal amount, payment terms, due date, interest if any.
- Negotiable instrument: can be transferred to third parties.
- Governed in Saudi by the Commercial Papers Law and enforceable through the Commercial Court.
Saudi Context
Promissory notes (sanad lamr) are widely used in Saudi commercial transactions, leasing arrangements, and personal lending. Under the Saudi Commercial Papers Law and the Enforcement Law, a defaulted promissory note can be enforced through the Enforcement Court without first obtaining a full Commercial Court judgment, making it a powerful collection tool.
Example
A Saudi business signs a promissory note for SAR 250,000 payable to a supplier in 6 months. If unpaid at maturity, the supplier can file directly with the Enforcement Court for asset seizure without a separate judgment.