{"id":10205,"date":"2026-03-20T17:21:06","date_gmt":"2026-03-20T16:21:06","modified":"2026-03-20T17:21:09","modified_gmt":"2026-03-20T16:21:09","slug":"promissory-note-as-security-benefits-pitfalls-and-practical-tips","status":"publish","type":"post","link":"https:\/\/www.madarassy-legal.com\/en\/promissory-note-as-security-benefits-pitfalls-and-practical-tips\/","title":{"rendered":"Promissory Note as Security: Benefits, Pitfalls and Practical Tips"},"content":{"rendered":"A promissory note as security (Hungarian: v\u00e1lt\u00f3 mint biztos\u00edt\u00e9k) is a financial instrument that entitles the holder to fast-track court proceedings, with deadlines that are a fraction of those in ordinary litigation \u2014 all without spending a single forint on a notary. Yet most businesses and individuals in Hungary never even consider it when choosing how to secure their contracts. A few lines on a sheet of paper, containing the elements prescribed by law, can be enough.\n\n\n\nWhy are more and more contracts backed by a promissory note?\n \n \nChanges in Hungary’s system of contractual securities\n \nThe Hungarian Civil Code (Ptk.), which came into force in 2014, eliminated fiduciary securities \u2014 including the security-purpose option to purchase \u2014 from everyday practice. As a result, businesses and financial institutions turned to alternatives. Issuing a promissory note as collateral for a contract (Hungarian: v\u00e1lt\u00f3 ki\u00e1ll\u00edt\u00e1sa biztos\u00edt\u00e9kk\u00e9nt szerz\u0151d\u00e9shez) has since re-emerged as a popular choice, particularly in bank lending and business-to-business transactions.\n \n \nWho should consider using a promissory note?\n \nPromissory notes are suitable for a wide range of situations: as a cover note in business-to-business transactions involving the supply of goods or services, but equally as security for loans between private individuals. They are especially valuable where the parties are looking for a fast and affordable safeguard without the costs of a notarial deed.\n\nWhat is a promissory note and how does it work as security?\n \n \nOwn notes and bills of exchange \u2014 the two basic types\n \nAct CLXXXV of 2017 on the Rules of the Law of Bills of Exchange (Vt.) regulates two types. With an own promissory note, the issuer personally undertakes to pay at maturity. With a bill of exchange, the issuer instructs a third party to pay. In practice, the own promissory note is far more commonly used for security purposes.\n \n \nThe cover note: a safety net, not a payment instrument\n \nA cover note (Hungarian: fedezeti v\u00e1lt\u00f3) is not used for payment \u2014 it serves as a backup. The creditor only relies on it if the debtor fails to meet its contractual obligations. This arrangement is particularly popular in ongoing business relationships.\n \n \nThe power of abstraction \u2014 why the debtor cannot raise defences from the underlying deal\n \nOne of the most important advantages of promissory notes is their abstract nature: once the note is endorsed to a third party, the debtor can no longer invoke defences arising from the original contract. The claim “detaches” from the underlying relationship and takes on a life of its own.\n \n \n \nWhat are the advantages of a promissory note compared to a notarial deed?\n \n \nCost: zero forints vs. hundreds of euros in notary fees\n \nPerhaps the most striking of the advantages of promissory notes is the cost difference. Having a HUF 20 million (approx. EUR 51,000) loan agreement notarised can cost HUF 80,000\u2013120,000 (approx. EUR 200\u2013300), whereas issuing a promissory note costs nothing in formal fees \u2014 it is a private document. Neither a notary nor a lawyer is legally required, although professional assistance is strongly recommended.\n \n \nFlexibility and transferability\n \nUnlike a notarial deed, a promissory note can be transferred to a third party by endorsement. The holder may use it to settle their own debts, or have it discounted at a bank. No other form of security offers this kind of flexibility so simply.\n\n\n\n\n\n\n\n\n \nPromissory note lawsuit rules \u2014 why is it faster than ordinary litigation?\n \n \nPriority proceedings and tight deadlines\n \nSections 88\u201392 of the Vt. set out the rules of procedural rigour specific to promissory note lawsuits. A key principle of Hungarian promissory note law is that the court must act on a priority basis at every stage \u2014 including appellate proceedings \u2014 and deadlines may not exceed 30 days. The case falls within the competence of the regional court regardless of the amount in dispute, and counterclaims, third-party interventions and joinder are not permitted.\n \n \nLimited defences and the reversal of the burden of proof\n \nIn promissory note proceedings, the creditor essentially satisfies their burden of proof by presenting the note. It is the debtor who must prove that the underlying transaction was invalid. This reversal creates an extremely favourable position for the creditor.\n \n \n \nHow to properly issue a promissory note as security\n \n \nMandatory elements of a promissory note\n \nA promissory note as security will only serve its purpose if it contains all elements required by law: the word “v\u00e1lt\u00f3” (promissory note) in the text and language of the document, an unconditional promise to pay a specified sum, the maturity date, the place of payment, the name of the payee, the date and place of issue, and the issuer’s signature. If any element is missing, the document does not qualify as a promissory note.\n \n \nCommon mistakes when issuing a note\n \nIn our firm’s experience, the most frequent errors are: failing to state the currency, using a non-existent maturity date (e.g. 31 June), omitting the word “v\u00e1lt\u00f3”, or leaving out the place of payment. According to case law (decisions BH 1992\/121 and BH 1996\/486 of the Hungarian Supreme Court), certain deficiencies may potentially be remedied even during litigation \u2014 but why take the risk?\n \n \n \nHow does an aval endorsement strengthen the security?\n \n \nThe concept and use of the aval note\n \nAn aval endorsement means that a third party assumes surety for the note by writing “per aval” or an equivalent expression and signing the note. This is particularly recommended where the debtor’s ability to pay is uncertain \u2014 typically, a financially stronger member of the debtor’s group of companies provides the guarantee on the note.\n \n \n \nWhat risks should you be aware of when using a promissory note?\n \n \nProtest, enforcement and the limits of procedural rigour\n \nIf the note is not paid at maturity, the holder must have the refusal of payment certified by a notarial protest \u2014 within two business days of maturity. Unlike a notarial deed, a promissory note does not in itself constitute a directly enforceable title; in case of non-payment, proceedings must be brought before the court. Although the law prescribes priority treatment, the workload of the courts means that promissory note lawsuits do not always conclude within weeks. This does not diminish the value of the note as security, but realistic expectations should be set.\n \n \n \nWhen should you choose a promissory note and when a notarial deed?\n\n\n\n\n\n\n\n Decision criteria: which security fits the transaction\n \nThe advantages and disadvantages of a promissory note versus a notarial deed depend on the nature of the transaction. The note is cheaper, more flexible and transferable, but requires litigation in case of non-payment. The notarial deed is more expensive, but allows direct enforcement without a lawsuit. For smaller-value deals and loan agreements, the promissory note is usually the more sensible choice, while for high-value, long-term credit facilities, a notarial deed may offer greater security.\n \n \nWhy it pays to consult a lawyer when issuing a promissory note\n \nAlthough no legal requirement mandates a lawyer’s involvement in issuing a promissory note, the pitfalls outlined above \u2014 missing elements, incorrect wording, failure to observe protest rules \u2014 can all be avoided with professional assistance. A promissory note only serves its purpose if it is drafted flawlessly.\n \n \n \n\n \nA promissory note as security is one of the most effective and affordable tools for strengthening your claims \u2014 provided it is properly drafted. Madarassy Law Firm has over 20 years of experience advising clients on contractual securities, from issuing promissory notes to conducting promissory note litigation. If you are looking for security for a transaction, contact us with confidence!\n \nGet in touch: www.madarassy-legal.com","protected":false},"excerpt":{"rendered":"A promissory note as security (Hungarian: v\u00e1lt\u00f3 mint biztos\u00edt\u00e9k) is a financial instrument that entitles the holder to fast-track court proceedings, with deadlines that are a fraction of those in ordinary litigation \u2014 all without spending a single forint on a notary. Yet most businesses and individuals in Hungary never even consider it when choosing […]","protected":false},"author":2,"featured_media":10204,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rop_custom_images_group":[],"rop_custom_messages_group":[],"rop_publish_now":"initial","rop_publish_now_accounts":[],"rop_publish_now_history":[],"rop_publish_now_status":"pending","footnotes":""},"categories":[42],"tags":[],"class_list":["post-10205","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/posts\/10205","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/comments?post=10205"}],"version-history":[{"count":2,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/posts\/10205\/revisions"}],"predecessor-version":[{"id":10209,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/posts\/10205\/revisions\/10209"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/media\/10204"}],"wp:attachment":[{"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/media?parent=10205"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/categories?post=10205"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.madarassy-legal.com\/en\/wp-json\/wp\/v2\/tags?post=10205"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}