1. DEBT

2. GROUNDS FOR A DEBT
Grounds for the creditor’s right to claim over a debt:
Agreement
Trade credit
Loan of money
Tort liability
Unjust enrichment

3. FORM OF THE TERMS OF DEBT
Main rule: freedom of contract
Fixed form: Bill of Exchange, consumer credit, hire-purchase agreement
DIFFERENT KINDS OF PROMISSORY NOTES
Non-negotiable/ordinary promissory note
Not-to-order promissory note
Negotiable promissory notes

4. NEGOTIABLE PROMISSORY NOTES
NONNEGOTIABLE
PROMISSORY NOTE
€100 payable
to Panu Banks
VilleDebtor
PROMISSORY NOTE
MADE OUT TO ORDER
€100 payable
to Panu Banks or
anyone ordered
by Panu Banks
Ville Debtor
BEARER BOND
€100 payable to
the bearer
Ville Debtor

5. TERM OF PAYMENT PLACE OF PAYMENT
If the parties have not agreed on the due date, the debt must be paid on demand but also may be paid on the debtor’s initiative
PLACE OF PAYMENT
The debt must be paid at the agreed place but if no such place, at the creditor’s place of business

6. Each has joint and several liability
SEVERAL DEBTORS
Each has joint and several liability
- A debtor who has paid more than his calculated share can claim the excess from the other debtors
Debtors may agree on pro rata liability or liability based on specified shares

7. INTEREST RATES
If the lender and borrower have not agreed that the debt will accrue interes => the debt is interest-free
If the parties have agreed that the debt will accrue interest but not on the interest rate=> the reference rate of interest notified by the Bank of Finland
If no agreement on the due date of the interest => due annually on the anniversary of the date when the promissory note was signed

8. OVERDUE INTEREST
If nothing else agreed, the reference rate of interest + 7%
In consumer credits never more than the reference rate of interest + 7%
Overdue interest must be paid from the due date
If no due date has been agreed in advance, the overdue interest must be paid 30 days after the date the creditor demanded payment

9. CASE
Uuno had signed a promissory note, in which he promised to pay € 500 on demand. Later, Eetu demanded payment and Uuno paid the debt by a bank transfer on Eetu’s bank account.
Two weeks after the payment, Eetu transferred the promissory note to Kaisa, who didn’t know about the payment.
Your comments?

10. TRANSFER OF PROMISSORY NOTES Non-negotiable promissory note
The debtor must be notified
No endorsement is necessary
The debtor has the right to present the same objections against the transferee that he could have presented against the original creditor

11. Negotiable promissory notes:
Transfer:
1) Promissory notes made out to order
Endorsement
blank endorsement (only endorser’s signature)
special endorsement (endorser’s signature and endorsee’s name)
2) Bearer instruments
Bearer’s possession of the document proves his right
The debtor has the right to present only strong objections against a transferee acting in good faith

12. OBJECTIONS OF THE DEBTOR
Strong objections e.g.
The promissory note
is a forgery
has been declared invalid by court
is invalid as a result of grave duress
was signed by someone not legally authorized to act on behalf of the debtor
Weak objections e.g.
The debt has been discharged or changed before the endorsement as a result of payment, agreement, set-off etc.
No consideration was received or it was defective
The promissory note was signed under duress, undue influence, fraud, mistake in utterance etc.

13. WEEK OBJECTION AGAINST AN ENDORSEE
NONNEGOTIABLE
PROMISSORY
NOTE
NEGOTIABLE
PROMISSORY
NOTE
Creditor
Debtor
Debtor
Creditor
NONNEGOTIABLE
PROMISSORY
NOTE
NEGOTIABLE
PROMISSORY
NOTE
Week
objection
Week
objection
Week objection is
effective against an
endorsee of a non-
negotiable promissory
note
Week objection is not effective against an endorsee of a
negotiable promissory note
Endorsee
Endorsee

14. DISCHARGE OF A DEBT Payment by the debtor to the creditor
Release that liberates the debtor from the debt
Set-off
Limitation of action
General limitation period is 3 years from the due date
Limitation period can be interrupted, after which it starts from the beginning
Special limitation periods: e.g. in Tax Law, Labour Law, Act on Guarantees

15. COLLATERALS

16. COLLATERAL
GUARANTEE
SECURITY

17. GUARANTEE

18. GUARANTEE
DEFICIENCY
SURETY
SECONDARY
GUARANTEE

19. GUARANTEE
Guarantor takes on the responsibility for the debt of another person
Guarantee concerns only the principal amount of debt, unless agreed otherwise
Creditor can demand repayment of the principal debt from the guarantor for three years counting of
when the principal debt has fallen due and insolvency of the debtor has been officially proven
=> Secondary guarantee or
when the principal debt has fallen due
=> Surety

20. 1. SECONDARY GUARANTEE
The guarantor is liable for the principal debt only if the principal debtor is not able to repay
insolvency of the debtor must be officially proven (bankruptcy, unsuccessful distraint, adjustment of debts)
A guarantee is a secondary guarantee unless agreed by the parties otherwise

21. 2. SURETY Guarantor is in the same legal position as the debtor
=> A creditor has the right to demand repayment from the guarantor immediately when the principal debt has fallen due
A guarantee must be explicitely defined as a surety
Generally used by banks

22. 3. DEFICIENCY Guarantee given to supplement another collateral
The guarantor is liable to pay the remainder of a debt if the property pledged for the principal debt is not sufficient

23. SEVERAL GUARANTORS Liability for the principal debt
Presumption, unless agreed otherwise:
Joint and several liability
=> Creditor may demand repayment of the total debt from any of the guarantors
If expressly agreed:
Pro rata liability
- Creditor may demand repayment of the proportional share of the debt from each guarantor
Liability based on specified shares
- The guarantors have agreed what their respective liabilities are

24. SEVERAL GUARANTORS Right of recourse
Each guarantor has for three years a proportional right of recourse against the other guarantors, who gave their guarantee with him at the same time, or earlier
Each guarantor has the right of recourse against the debtor for at least three years

25. SECURITY

26. SECURITY MORTGAGE PLEDGE The property remains Debtor hands over
in the possession of the
debtor but it is mortgaged
as security for a debt
or other obligation
PLEDGE
Debtor hands over
some personal
property to
the creditor
VESSEL, AIRCRAFT
etc. MORTGAGE
REAL ESTATE
MORTGAGE
ENTERPRISE
MORTGAGE

27. 1. PLEDGE
Debtor (pledgor) hands over some personal property to the creditor (pledgee)
If the debtor fails to perform his obligation secured by the pledge, the creditor may sell the pledge and obtain satisfaction
When the debt has fallen due and
Notice has been given to the debtor stating that the pledge will be sold if he does not redeem the pledge within one month and
Pledge has not been redeemed
Pledgee has priority over other creditors

28. 2. REAL ESTATE MORTGAGE
The real estate remains in the possession of the debtor but it is mortgaged as security for a debt
When the mortgage instrument is handed over to the creditor, the real estate lien is created
If the debtor fails to repay his debt, the creditor can enforce the debt
The property is sold at a real estate auction
If the property is mortgaged as security for several debts, senior mortgages are paid before junior ones

29. CREATING A REAL ESTATE LIEN
DISTRICT COURT
Granting the mortgage
Entry into the Mortgage Register
Mortgage instrument as a certificate 1
Application for a mortgage
Owner of the real estate 2
Mortgage instrument to the owner
MORTGAGE INSTRUMENT 3
Creditor
Mortgage instrument to the creditor
Real estate lien is created