Promissory Note under Saudi law | Terms and Procedures

under Saudi law, a promissory note is a financial instrument that has legal force, as it includes an explicit written promise from one person to another to pay a specific amount of money on a specific or determinable date.

A promissory note is a preferred option for documenting debts and fulfilling financial obligations between individuals and companies in the Saudi market. Therefore, it is important to know what it is, its basic elements, the conditions that ensure its validity and enforceability, and how to issue it correctly in a way that protects the creditor's rights.

In this article, we will explain and analyze everything related to this financial instrument and clarify the difference between a promissory note, a check, and a bill of exchange, to serve as a comprehensive guide for everyone who deals with this important commercial paper in the Kingdom of Saudi Arabia.

Abdulaziz bin Yasser Al-Anzi Law Firm

What is a promissory note?

It is a financial document in which someone undertakes "in writing" to pay a certain amount of money to another person on a specific date or on demand. This document is a legally binding instrument that can be used in most commercial transactions because it provides guarantees that protect the financial rights between the parties and makes it conclusive evidence in the event of any dispute.

Types of promissory notes under Saudi law

He did not putCommercial Paper SystemIn Saudi Arabia, there is a specific classification of types of promissory notes, where it is sufficient to specify the conditions required for issuing them, regardless of the mechanism of their release. However, we can classify promissory notes into two main types: paper notes and electronic notes.

paper promissory note

It can be issued on ready-made printed forms or on plain paper, whether handwritten or computer-generated, provided that the required data is written, in order to become approved and valid as proof, as long as it meets all its requirements.

Electronic promissory note

It can be issued through the Nafith platform of the Ministry of Justice, which provides a service for issuing electronic promissory notes with complete data and in a unified format that electronically links the two parties of the note, and ensures that the signatures are not tampered with or denied.

This type is characterized by the fact that its acceptance is binding on the debtor within a specific period. If it expires without acceptance, the offer is dropped. It also has a binding force that prevents the debtor from canceling it unilaterally, while the creditor retains the right to cancel it whenever he wants, thus providing the highest levels of protection for rights and ensuring its acceptance before the execution court without obstacles.

Invalidating factors of a promissory note

There are a number of fundamental errors that lead to the invalidity of a promissory note under Saudi law and its loss of legal force. The most prominent of these are the incompleteness of basic data, the suspension of payment on a future condition, or the failure to document it electronically in a legally sound manner. The following is an explanation of these errors in some detail:

1. Loss of legal capacity in one of the parties.
2. Do not write the phrase "promissory note" or anything similar.
3. The absence of a legitimate reason for releasing the bond.
4. The amount of the bond or the time and place of repayment are not specified.
5. The expiry of the statute of limitations, which is three years from the date of entitlement.
6. Lack of consent and proof of coercion or fraud.
7. No signature.

The debtor has the right to object to the promissory note before the execution court if it has a fundamental defect. The grounds for objection are divided into two types: formal defects related to the document not fulfilling the required data, or substantive defects such as forgery, the expiration of the debt, or fraud by the creditor.

The legally approved promissory note format

In order for a promissory note to be a legally valid and enforceable document under Saudi law, its wording must be as follows:

Date: Location: Amount:

I, [Name of Editor], hereby promise to pay [Name of Beneficiary] by this instrument the sum of [Amount in Figures] [Amount in Words] on [Date] or on demand.

Editor's Name: Signature:

Terms of a promissory note in the Saudi legal system

The most important conditions for a promissory note under Saudi law are the availability of a set of basic data, and any defect or deficiency in this data results in the invalidity of the note and its loss of legal force.

The document must explicitly include the phrase "promissory note" in its text, specifying the amount in Saudi Riyals both numerically and in writing, and recording the date and place of issuance of the note, the full details of the issuer, and his personal signature.

The promissory note should also include an unconditional promise to pay the amount on a specified due date, as this document is by its nature a direct and effective promise once it is issued.

One of the most important conditions for a promissory note under Saudi law is that the issuer must be at least 18 years old, and that the note must be free of any defects in consent, and it must be issued in accordance with the forms approved in the Saudi Commercial Papers System.

You can hire a lawyer specializing in commercial law to ensure the correctness of the procedures for issuing the promissory note in accordance with the system adopted in the Kingdom.

How to issue, execute, and terminate a promissory note

This section explains how to issue, execute, and terminate a promissory note as follows:

1. The promissory note can be issued electronically under Saudi law on the "Nafeth" platform.
2. You can use the specially prepared and approved form from the Ministry of Justice, or you can draft the document on paper, provided that all the required data is completed.
3. Fill in the required data accurately and make sure it is correct.
4. The document can be signed either by hand or using an approved electronic signature if using the Nafez platform.
5. The beneficiary of the bond must provide an original copy so that he can claim its value on the due date, as the claim can only be made with the original document.
6. When the due date arrives and the debtor refuses to pay, the beneficiary has the right to submit a request to execute the promissory note directly to the competent execution court.
7. The beneficiary can complete the execution steps via the Najiz platform by selecting the "Execution Services" icon and attaching a copy of the promissory note, either the original or the approved electronic version.
8. After the execution order is issued within 24 hours, a specialized lawyer will submit the application on behalf of the beneficiary and follow up on the collection procedures, from notifying the debtor and freezing his accounts to preventing him from traveling until the full amount is received.
9. Terminating the bond is a legal procedure undertaken by the creditor to terminate the effect of the bond and waive the right to claim it before the execution court, with immediate notification to the parties.
10. The legal termination cases are the full payment of the amount, the waiver and release of the creditor, or the expiry of the legal limitation period of "three years".
11. When a promissory note is terminated, the financial obligation becomes final and the creditor cannot claim the right again or resubmit the note for execution.

What is the penalty for forging a promissory note?

The Saudi legislator prioritizes protecting financial transactions and enhancing confidence in the Kingdom's economic system. Therefore, it stipulates penalties that serve as a legal guarantee for the implementation of financial obligations, and confirms the government's commitment to applying justice and protecting citizens' rights.

The most prominent penalties applied include preventing the forger from leaving the Kingdom, freezing his bank accounts, and imposing a ban on his dealings with official government agencies.

The penalty may also include imprisonment for a period determined based on the value of the amount claimed, with the aim of protecting the rights of creditors and ensuring the stability of commercial transactions in the Saudi market.

Does a promissory note prevent the transfer of sponsorship?

According to the regulations adopted in the Kingdom of Saudi Arabia, issuing a promissory note does not have any legal effect that prevents the transfer of sponsorship, as all the provisions of the Labor Law, the Commercial Papers Law, and the Enforcement Law are devoid of any provision that authorizes any government agency or competent authority to stop the procedures for transferring sponsorship based solely on the existence of a promissory note.

The difference between a promissory note, a check, and a bill of exchange.

To clarify the difference between a promissory note, a check, and a bill of exchange, we can define each one separately:

As we mentioned, under Saudi law, a promissory note is a commercial paper that has a special legal form that distinguishes it from other commercial papers. By virtue of it, the debtor makes a direct promise to pay a certain amount of money to the creditor on a specific or determinable due date. The promissory note may be used as a guarantee instrument in addition to being a payment instrument as well.

As for the check, it is one of the most traded commercial papers among dealers, and it has a legal form that differs from other commercial papers. It is written by the debtor to the drawee, ordering him to pay a certain amount to the holder of the check or to the order of a third person called the beneficiary.

A check is a means of cash payment and not for postponing a financial obligation. It may not be used as security for a future debt or one contingent upon a condition, otherwise it would be in violation of the laws regulating commercial papers.

As for the bill of exchange, it is one of the oldest types of commercial papers and the least common in our time. It consists of three main parties: the creditor who orders payment, the debtor who is ordered to pay, and the beneficiary, who is the holder of the bill of exchange or the one in whose favor it was issued.

The bill of exchange is characterized by the flexibility of the due date, as it may be payable on demand or postponed to a specific date specified in it, and thus it acquires the character of a credit instrument in addition to being a payment instrument.

A licensed Saudi lawyer specializing in commercial papers

It becomes clear that issuing a promissory note under Saudi law involves more than one stage, and it might be wise to consult...Specialized lawyerIn this field, the following are the most prominent legal services offered by the lawyer in this area:

1. Drafting the promissory note according to the legally approved format, while ensuring the availability of all essential legal data.
2. Verifying that all elements of the promissory note are complete to avoid any reason for its invalidity.
3. Providing legal advice on the best ways to use a promissory note as a guarantee or payment instrument.
4. Preparing and submitting the enforcement request to the competent enforcement court on behalf of the creditor, and following up on its procedures until the enforcement order is issued within the legally permitted period.
5. Representing clients in promissory note-related lawsuits, whether they are plaintiffs or defendants.
6. Dealing with and proving cases of forgery before the judicial authorities.
7. Finalizing the promissory note procedures after payment, and lifting all restrictions on the debtor.

Abdulaziz bin Yasser Al-Anzi Law Firm

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