The promissory note in asset acquisition operations.
The promissory note is an instrument used oftentimes in international operations for asset acquisitions, by virtue of which one part (issuer) undertakes to finance the other (beneficiary) a certain amount of money.
Although the common thing is that the promissory note makes the funds available in favour of the beneficiary upon prior fulfilment of certain conditions or milestones, admits its irrevocable emission but not a conditional one (modality that allows to use it as a negotiated instrument).
The promissory note should contain the basic conditions in which will grant the funding committed, this is: amount, ordinary interests, default interests and its date of refunding. It also has special relevance the negotiation of this financing instruments, the guarantees with which the issuer has to ensure the recovery of the borrowed money, and that usually leads to a mortgage or a forfeit of the goods finally acquired, depending on if they are immovable or movable assets, respectively.
Likewise, for the promissory note to become legally viable, it has to be enforced with the signature of a person from the entity with enough and sufficient capacity that acts as the issuer, so that it can link to the transaction (whether the person is a proxy or an administrator of the issuing company). Something that appears certain, but frequently it is not checked as it should by the stakeholders involved in the negotiation, and specially in knowing the real solvency of the possible acquirer of the assets involved.
In the commercial practice area, the promissory note can either be part of a Letter of Intent or Memorandum of Understanding (also known as “LOI” or “MOU”), or constitute an independent document, referring to a certain operation that is intended to be financed (e.g. the purchase of a company or real estate assets).
The common thing is that the promissory note features in private document, not being necessary uplifting it to public document until the moment of its subsequent execution/conversion in a mortgage loan or forfeit of stocks/shares with which the issuer intends to guarantee the return of the loaned amount.
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