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The rise of incomplete promissory notes in Peru

Bruno Marchese
Peruvian regulations (Law 27287) allow for the issuance and acceptance of incomplete promissory notes as instruments representing payment obligations. The Law allows for such notes to be issued without having to set forth a specific payment date, or the actual amount payable under the note, and other stipulations that are typically included in notes and similar payment documents, but may be left blank in these incomplete promissory notes.

The items left blank in the note will have to be completed by the creditor, upon the occurrence of certain events.

Evidently, the use of incomplete promissory notes is popular among lenders in financing transactions with Peruvian borrowers. For example, it is popular in project financing transactions where complex mathematic calculations are often required to determine the amounts owed upon the event of default, as they give creditors the chance to proceed with the quantification of the debt by themselves (according with the provision of their financing agreements) and complete the note with such information. This is a big advantage for creditors at the moment of collection of the applicable debt, as the legal procedure for their enforcement before the courts is much simpler and faster.

In order to protect debtors from wrongful or defective completion of the blank information in the promissory note, applicable law establishes very strict provisions, such as the following: (i) the incomplete promissory note must be completed in accordance with a separate document establishing precise instructions of how the note must be completed; (ii) at the time of the issuance of the note, the debtor may obtain a copy of the promissory note and the document that contains the instructions for its completion, as evidence of the original information contained in the note and how it must be completed later; and (iii) the debtor can add a provision to the note for the limitation of any assignment, which enables him to oppose new creditors.

This type of direct payment instrument continues to be a very popular means to represent debt, and has become an industry standard in Peru.

Bruno Marchese

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