PROMISSORY NOTE
                                ---------------


$37,350.00                                                  New York, New York
                                                            March  26,  1997



     FOR  VALUE  RECEIVED, M.I. Garcia Cuesta, an individual residing at Jesus
del  Monte  #56,  Apt.  6D,  Huixquilucan,  Estados  de  Mexico,  Mexico  (the
"Borrower"), hereby promises to pay to the order of Penn Octane Corporation, a
Delaware  corporation  (the  "Lender"), at its offices located at 900 Veterans
Boulevard,  Redwood  City,  California  94063,  or  at such other place as the
Lender  shall  designate,  the principal amount of Thirty Seven Thousand Three
Hundred  and Fifty Dollars ($37,350.00) on March 26, 2000.  The Borrower shall
pay  interest on the unpaid principal amount hereof from the date hereof until
paid, at a rate of eight and one quarter percent (8.25%) per annum, to be paid
annually  in  arrears on each March 26 commencing March 26, 1998 and ending on
March  26,  2000.

     Should  the  indebtedness represented by this Promissory Note or any part
thereof  be  collected  at  law or in equity or in bankruptcy, receivership or
other similar court proceedings or this Promissory Note be placed in the hands
of  attorneys  for  collection  before  or  after  maturity, the Borrower, its
successors  and  assigns,  agree  to  pay,  in  addition  to the principal and
interest  due  and  payable hereon, reasonable attorneys' and collection fees.

     If the Borrower shall fail to make payment of any installment of interest
on  this Promissory Note when due, and if such default is not cured within ten
(10) days thereafter, or if the Borrower shall become insolvent or a voluntary
or uncontroverted petition shall be filed under the Federal Bankruptcy Code or
other similar Federal or state law dealing with arrangements for the relief of
creditors  with respect to the Borrower (in each case, an "Event of Default"),
and  in  any such event, the holder shall have the right without notice to the
Borrower  to  declare  this Promissory Note with accrued interest hereon to be
immediately  due  and  payable  (whether  or  not then due by the stated terms
hereof),  whereupon  the  same shall become and be immediately due and payable
without  presentment,  demand, protest or notice of any kind, all of which are
hereby  expressly  waived  by  the  Borrower.

     This  Note  is  secured  by  and entitled to the benefits of a Pledge and
Security  Agreement  dated  the  date  hereof  pursuant  to  which  Borrower's
obligations  hereunder  are  secured  by  fifteen  thousand (15,000) shares of
Common  Stock,  $0.01  par  value,  of  the  Lender  owned  by  Borrower.

     No  waiver  by  the  holder of any breach of any covenant of the Borrower
herein  contained  or  any  term  or  condition hereof shall be construed as a
waiver  of any subsequent breach of the same or of any other covenant, term or
condition  herein.


     This  Promissory Note shall be deemed to have been made under, and in all
respects  shall  be  governed by and construed in accordance with, the laws of
the  State  of  New  York.


                                   /s/M.I.  Garcia  Cuesta
                                   -----------------------
                                   M.I.  Garcia  Cuesta




                         PLEDGE AND SECURITY AGREEMENT


     PLEDGE  AND  SECURITY  AGREEMENT dated as of March 26, 1997, made by M.I.
Garcia  Cuesta  ("Borrower")  in  favor of Penn Octane Corporation, a Delaware
corporation  (the  "Corporation"),  for  the  benefit  of  the  Corporation.

                             W I T N E S S E T H:
                             -------------------

     WHEREAS,  in  connection  with  the  exercise  by Borrower of warrants to
purchase  15,000  shares  of Common Stock, $0.01 par value, of the Corporation
(the "Common Stock") for $2.50 per share, the Corporation has agreed to accept
$150  in  cash  and  a  three-year  promissory note dated the date hereof (the
"Promissory  Note") from Borrower in the amount of $37,350 bearing interest at
the  rate  of  8.25% per annum, payable annually, and subject to the terms and
conditions  set  forth  in  the  Promissory  Note;  and

     WHEREAS,  Borrower  has  agreed  to  grant a security interest in certain
shares  of  Common Stock owned by Borrower to secure, equally and ratably, the
prompt  and  complete  payment  when due of all Borrower's payment obligations
under  the Promissory Note (the "Secured Obligations") and the performance and
observance  by  Borrower  of  the  covenants, obligations and conditions to be
performed  and  observed  by  Borrower  pursuant  to  the  Promissory  Note;

     NOW,  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
agreements  set  forth  herein,  the  parties  hereto  agree  as  follows:

1.          Definitions.
            -----------

     (a)     The words "hereof," "herein" and "hereunder" and words of similar
import,  when used in this Agreement, shall refer to this Agreement as a whole
and not to any par-ticular provision of this Agreement, and section references
are  to  this  Agreement,  unless  otherwise  specified.

     (b)       Unless otherwise defined herein, all terms defined in Article 8
and  9  of  the Uniform Commercial Code in effect as of the date hereof in the
State  of  New York (the "Uniform Commercial Code") are used herein as therein
defined.

2.          Grant  of  Security  Interest.
            -----------------------------

     (a)     To secure the prompt and complete payment when due of all Secured
Obligations,  now  existing  or  hereafter  arising,  and  the performance and
observance  by  Borrower  of  the  covenants, obligations and conditions to be
performed  and  observed by Borrower pursuant to the Promissory Note, Borrower
hereby  assigns and pledges to the Corporation and grants to the Corporation a
con-tinuing  security  interest in all of its right, title and interest in and
to  fifteen  thousand (15,000) shares of Common Stock of the Corporation owned
by  Borrower  (the  "Pledged  Stock")  and  the certificates representing such
Pledged Stock, and all dividends, cash, rights, instruments and other property
and  all  proceeds  of  every  kind thereof (whether the same are now owned or
exist  or  arise or are acquired before or after the date hereof) from time to
time  received,  receivable  or  otherwise  distributed  in  respect  of or in
exchange  for, any or all of the Pledged Stock (whether the same are now owned
or  exist  or  arise  before  or  after  the  date  hereof) (the Pledged Stock
to-gether  with  all  such certificates, dividends, cash, rights, instruments,
property  and  proceeds,  being here-inafter referred to as the "Pledged Stock
Collateral").

     (b)         Borrower hereby delivers to the Corporation, duly endorsed in
blank  or  accompanied  by  appropriate  undated stock powers duly executed in
blank, all certifi-cates or instruments representing or evidencing the Pledged
Stock.

     3.       Stock Dividends, Distributions, Etc. If, while this Agreement is
              -----------------------------------
in  effect,  Borrower  shall  become  entitled to receive or shall receive any
stock,  any  stock  certificate  representing  same,  options, rights or other
Property (in-cluding, without limitation, any certificate representing a stock
dividend  or  any  distribution  in  connection  with  any  recapitalization,
reclassification,  increase  or  reduction of capital, or issued in connection
with any reorganization), whether as an addition to, in substitution of, or in
exchange for, any shares of any Pledged Stock Collateral, or otherwise, or any
payment or distribution of capital on account of any Pledged Stock Collateral,
Borrower  agrees to accept the same as the Corporation's agent and to hold the
same  in  trust  on  behalf  of and for the bene-fit of the Corporation and to
deliver  the same to the Corporation on or before the close of business on the
second  Business  Day  following the receipt thereof by Borrower, in the exact
form  received, with the endorsement of Borrower when necessary or appropriate
undated  stock  powers  duly executed in blank, to be held by the Corporation,
subject  to  the  terms  of  this  Agreement,  as  ad-ditional  Pledged  Stock
Collateral  and any cash distribution in connection therewith or cash proceeds
therefrom  shall  be  deposited by the Corporation in a segregated account for
Borrower  (the  "Borrower  Collateral Account"), and thereafter disposed of in
accordance  with  this  Agreement.

4.        Cash Dividends; Voting Rights.  Unless Borrower is in default of his
          -----------------------------
payment  obligations  under  the Promissory Note for a period of ten (10) days
after  written  notice from the Corporation of such default, Borrower shall be
entitled,  except  as  otherwise  provided  in Section 3, to re-ceive all cash
distributions  and  cash  dividends  in  respect  of  the Pledged Stock and to
exercise  all  voting  and  other  consensual rights pertaining to the Pledged
Stock.    Borrower  agrees  to  exercise  all such voting and other consensual
rights  for  a purpose not inconsistent with or violative of the terms of this
Agreement.    The Corporation shall not have the right at any time to exercise
any  voting  rights with respect to the Pledged Stock; provided, however, that
upon  the  sale  or  other  disposition  of  the Corporation's interest in the
Pledged  Stock  or  any  part  thereof,  any  third  party  purchaser or other
transferee  shall  have  the  full  and unrestricted right to vote the Pledged
Stock,  in  any  manner  per-mitted  by  applicable  law.

5.      Proxies, Etc.  The Corporation shall exe-cute and deliver (or cause to
        -------------
be  executed and delivered) to Borrower all such proxies and other instruments
as  Borrower  may  rea-sonably request for the purpose of enabling Borrower to
exercise  the  voting  or  other rights which Borrower is entitled to exercise
pursuant  to  Section 4 hereof and to receive all distribu-tions and dividends
he  is  authorized  to  receive  and  retain  pursuant  to  Section  4 hereof.

6.     Financing Statements.  Borrower hereby agrees to execute such financing
       --------------------
statements  as the Corporation may request, from time to time, with respect to
the  Pledged  Stock  Collateral,  and  take  such action as may be required to
perfect  and  keep  perfected  the  security  interest  in  the  Pledged Stock
Collateral  created  hereby, and Borrower hereby authorizes the Corporation to
execute  as  its  attorney  in  fact and file any such financing statements on
Borrower's  be-half.

7.        Rights of the Corporation.  If Borrower is in default of his payment
          -------------------------
obligations  under  the Promissory Note and such default is not cured within a
period of ten (10) days thereafter, or if Borrower shall become insolvent or a
voluntary  or  uncontroverted  involuntary  petition  shall be filed under the
Federal  Bankruptcy  Code  or  other similar Federal or state law dealing with
arrangements  for  the  relief  of creditors with respect to Borrower (in each
case,  an "Event of Default"), Borrower shall no longer be entitled to receive
any  cash  divi-dends  or  distributions in respect of the Pledged Stock or to
exercise  any voting rights, rights of conversion, exchange or subscription or
any  other  rights,  privileges  or  options  pertaining  to any shares of the
Pledged  Stock;  and,  upon the sale or other disposition of the Corporation's
interest  in  the Pledged Stock or any part thereof, any third party purchaser
or other transferee shall have the full and unrestricted right to exercise any
and  all  such  rights,  privileges  or  options.

8.          Remedies.
            --------
     (a)     If there shall have occurred an Event of Default, the Corporation
may  at any time or from time to time exercise in respect of the Pledged Stock
Collat-eral, in addition to all other rights, powers and remedies provided for
in  Section  7, at law, in equity or otherwise available to it, all the rights
and  remedies  of  a secured party under the Uniform Commercial Code and under
any  other  applicable  law  as in effect in any relevant jurisdiction and, in
connection  therewith  but  not  in  limita-tion thereof, the Corporation may,
without demand for performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale  or  other  disposition) to Borrower or any other Person (all and each of
which  demands, advertisements and notices are hereby expressly waived), sell,
assign,  grant  an  option  or options to purchase or otherwise dispose of the
Pledged  Stock Collateral or any part thereof in one or more parcels at public
or  private  sale  or sales, at any exchange, bro-ker's board or at any of the
Corporation's  offices  or elsewhere and at such prices as the Corporation may
deem  best, for cash, on credit or for future delivery, with-out assumption of
any  credit risk, free of any claim or right of whatsoever kind (including any
right  or equity of redemption) of Borrower, which claim, right and equity are
hereby expressly waived and released, and upon such other terms and conditions
as  the  Corporation may deem commercially reasonable, provided, however, that
                                                       -----------------
Borrower  shall not be credit-ed with the net proceeds of any such credit sale
or  future  delivery until the cash proceeds thereof are actually re-ceived by
the  Corporation  and  are applied to the Secured Obligations until satisfied.

     (b)          Borrower  agrees that, to the extent notice of sale or other
disposition  shall  be  required  by  applicable  law, at least ten (10) days'
notice  to  Borrower  of  the  time  and  place  of  any  public sale or other
disposition  or  the  time  after  which  any  private  sale or other intended
disposition  may  be  made.    Notice shall constitute reasonable notification
thereof.    Notification need not be given to Borrower if it has signed, after
an  Event  of  Default  has  occurred,  a  statement  renouncing  any right to
notification of sale or other intended disposition.  The Corporation shall not
be obligated to make any sale or other disposition of Pledged Stock regardless
of  notice  having  been  given.

     (c)       The Corporation may adjourn any public or private sale or other
disposition  from  time  to  time by an-nouncement at the time and place fixed
therefor,  and  such sale or other disposition may, without further notice, be
made  at  the  time  and  place to which it was so adjourned.  The Corporation
shall  have  the  right upon any such public sale or other disposition, to the
extent  permitted  by applicable law, to purchase the whole or any part of the
Pledged  Stock  Collateral  so  sold  or  disposed  of.   Any and all proceeds
received  by  the  Corporation  in  respect  of  any  sale  or disposition of,
collection from, or other recovery or reali-zation upon all or any part of the
Pledged  Stock, whether con-sisting of moneys, checks, notes, drafts, bills of
exchange,  money  orders  or commercial paper of any kind whatsoever, shall be
deposited  by the Corporation in the Borrower Col-lateral Account and shall be
held by the Corporation, to be withdrawn and distributed by the Corporation as
provided  herein.

     (d)          The  rights  and  remedies provided under this Agreement are
cumulative  and may be exercised singly or concurrently, and are not exclusive
of  any  rights  and  remedies  provided  by  law  or  equity.

     (e)      Borrower recognizes that the Corporation may be unable to effect
a  public  sale  of all or a part of the Pledged Stock Collateral by reason of
certain  prohibitions  contained in the Securities Act of 1933, as amended, or
other  federal  securities  laws,  as  now  or  hereafter  in  ef-fect,  or in
applicable  Blue  Sky  or  other state securities laws, as now or hereafter in
effect,  but  may  be  compelled  to  resort to one or more private sales to a
restricted  group  of  purchasers  who  will  be obliged to agree, among other
things,  to  acquire such Pledged Stock Collateral for their own ac-count, for
investment  and  not  with  a  view  to  the  distribu-tion or resale thereof.
Borrower agrees that private sales so made may be at prices and on other terms
less  favorable  to the Corporation than if such Pledged Stock Collateral were
sold at public sale, and that the Corporation has no obliga-tion to delay sale
of  any  such  Pledged  Stock  Collateral  for the period of time necessary to
permit the registration of such Pledged Stock Collateral for public sale under
such  applicable  secu-rities  laws.   Borrower agrees that private sales made
under  the  foregoing  circumstances  shall  be  deemed to have been made in a
commercially  reasonable  manner.

     (f)       If the Corporation determines to exercise its right to sell all
or  any  of  the Collateral, upon written request, Borrower shall from time to
time  furnish  to  the Corporation all such information as the Corporation may
request  in order to determine the Collateral which may be sold by Borrower as
exempt  transactions  under  the  federal  securi-ties  laws.

     (g)       The proceeds of the sale of any of the Pledged Stock Collateral
sold pursuant to this Section 8 and cash constituting Pledged Stock Collateral
received  under  Section  2(a) shall be applied by the Corporation as follows:

          FIRST:        to the payment of the costs and expenses of such sale,
          -----
including  the  out-of-pocket  expenses  of  the  Corporation and the fees and
out-of  pocket  expenses  of  legal  advisers  employed  by the Corporation in
connection  therewith,  and  to  the  payment  of  all  advances  made  by the
Corporation  hereunder  and  payment of all costs and expenses incurred by the
Corporation  in  connection  with  the  administration and enforcement of this
Agreement;

          SECOND:          to  the payment in full of the Promissory Note; and
          ------

          THIRD:        the balance (if any) of such proceeds to Borrower, the
          -----
successors or assigns of Borrower, or as a court of competent jurisdiction may
direct.

9.       Representations; No Disposition, Etc.  Borrower hereby represents and
         -------------------------------------
warrants that it now owns good and marketable title to the Pledged Stock, free
and  clear  of  any  liens, charges, encumbrances or security interests of any
kind  whatsoever, and that the Pledged Stock is not subject to any restriction
on  alienation or transfer, in each case, other than this Agreement.  Borrower
covenants  to  defend the right, title and special property of Borrower in and
to the Pledged Stock against the claims and demands of all persons whatsoever.
Borrower hereby represents, warrants and covenants that Borrower is currently,
or  shall  be, the only owner of the Pledged Stock and that Borrower does not,
and will not have, outstanding rights, options, warrants, conversion rights or
other commitments or agreements for the purchase or acquisition of the Pledged
Stock.   Borrower agrees that he will not sell, assign, transfer, exchange, or
otherwise  dispose  of,  or  grant  any  option  or right with respect to, the
Pledged  Stock  Col-lateral,  nor will it create, incur or permit to exist any
lien,  security interest therein, charge or encumbrance with respect to any of
the Pledged Stock Collateral, any interest, or any pro-ceeds thereof except as
permitted  by  this  Agreement.

10.          Possession  of the Collateral.  The Corporation shall hold in its
             -----------------------------
possession  in  the  State  of  California all the Pledged Stock and all other
certificates,  documents  or instruments constituting Pledged Stock Collateral
pledged,  assigned  or  transferred  hereunder except as from time to time any
such  certificate,  document or instrument may be required for re-cordation or
for  the  purpose  of  enforcing  or realizing upon any right or value thereby
represented;  provided,  however, that Borrower, in his capacity as an officer
of  the  Corporation  or  otherwise, shall have no ability to assign, release,
transfer or otherwise deal with the Pledged Stock Collateral.  The Corporation
may,  from  time to time, in its sole discretion appoint one or more agents or
trustees (which in no case shall be Borrower or any of his affiliates) to hold
physical  custody,  for  the  account  of  the Corporation, of any or all such
certificates,  documents  or  in-struments.

11.     Collateral Agreement. Each of Borrower and the Corporation agrees that
        --------------------
the  parties  hereto  may supplement, amend or supersede this Agreement with a
collateral  agreement  among the Corporation, Borrower and a third party bank,
as  trustee, pursuant to which such third party bank shall accept and maintain
possession  of  the  Pledged  Stock  Collateral until such time as the Secured
Obligations  shall  have  been  satisfied.

12.         Further Assurance.  Borrower agrees that at any time and from time
            -----------------
upon the written request of the Corporation, Borrower will execute and deliver
such  further documents, including a collateral agreement appointing a trustee
other  than  the Corporation and any necessary financing statements, and do or
cause  to  be  done  such  further  acts  and  things  as  the Corporation may
reasonably  request  in  order  to  effect  the  purposes  of  this Agreement.

13.          Release of Security Interest.  Upon termination of this Agreement
             ----------------------------
pursuant  to  Section  17  hereof,  the security interest granted hereby shall
terminate.    Upon  any  such termination, the Corporation will, at Borrower's
expense,  execute  and  deliver  to  Borrower such documents as Borrower shall
reasonably request to evidence such termination including, without limitation,
duly  executed  Uniform  Commercial  Code  termination  statements.

14.          Limitation  by  Law;  Severability.
             ----------------------------------

     (a)     All rights, remedies and powers provided in this Agreement may be
exercised  only  to  the extent that the exercise thereof does not violate any
applicable  provision  of  law,  and  all the provisions of this Agreement are
intend-ed  to  be  subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not  render  this  Agreement  ille-gal, invalid, unenforceable, in whole or in
part,  or  not  entitled  to  be  recorded,  registered,  or  filed  under the
pro-visions  of  any  applicable  law.

     (b)          Any  provision  of  this  Agreement  which is pro-hibited or
unenforceable  in  any  jurisdiction  shall  not  in-validate  the  remaining
provisions  hereof,  and  any  such  pro-hibition  or  unenforceability in any
jurisdiction  shall  not  invalidate or render unenforceable such provision in
any  other  jurisdiction.

15.          Waivers,  Amendments.    None  of the terms or provisions of this
             --------------------
Agreement  may  be  waived,  altered,  modified  or amended by any act, delay,
omission  or  otherwise,  except  by  an  instrument  in writing which is duly
executed  by  Borrower  and  the  Corporation.    Any such waiver, alteration,
modification or amendment shall be valid only to the extent therein set forth.
A waiver by the Corporation of any right or remedy under this Agreement on any
one  occasion  shall  not  be construed as a bar to any right, remedy or power
which the Corporation would otherwise have on any future occasion.  No failure
to  exercise  nor any delay in exercis-ing on the part of the Corporation, any
right,  remedy  or  power  under  this  Agreement,  shall  operate as a waiver
thereof;  further, no single or partial exercise of any right, remedy or power
under  this  Agreement shall preclude any other or further exercise thereof or
the  exercise  of  any  other  right,  remedy  or  power.

16.          Binding  Effect; Successors and Assigns.  This Agreement shall be
             ---------------------------------------
binding upon and inure to the benefit of the parties hereto and shall inure to
the  benefit  of the Corporation its successors and assigns and nothing herein
is  intended  or shall be construed to give any other Person any right, remedy
or  claim  under,  to  or  in  respect  of this Agreement or any Pledged Stock
Collateral.

17.          Termination  of  This  Agreement.  This Agreement shall terminate
             --------------------------------
simultaneously  with  the  payment  in  full of all principal and interest due
under  the  Promissory  Note  and,  upon  such  termination, any Pledged Stock
Collateral  held  hereunder  shall be released and delivered to Borrower or at
his  direction.

18.     Notices.  All notices or other communications hereunder shall be given
        -------
in  the  following  manner.
          If  to  the  Corporation:

          Penn  Octane  Corporation
          900  Veterans  Boulevard
          Redwood  City,  California    94063
          Attention:  Chief  Financial  Officer

          If  to  Borrower:

          Jerome  B.  Richter
          Penn  Octane  Corporation
          900  Veterans  Boulevard
          Redwood  City,  California    94063

     Any  of the addresses set forth above may be changed from time to time by
written  notice  from  the  party  requesting  the  change.

19.          Applicable  Law.    This  Agreement shall be gov-erned by, and be
             ---------------
construed  and  interpreted in accordance with, the internal laws of the State
of  New  York  without  reference to principles of conflict of laws, except as
re-quired  by  mandatory  provisions  of  law.


<PAGE>

     IN  WITNESS  WHEREOF, the parties hereto have execut-ed this Agreement or
caused  this  Agreement  to  be  duly  exe-cuted  and  delivered by their duly
authorized  officers  as  of  the  date  first  above  written.


                                   BORROWER


                                   /s/M.I.  Garcia  Cuesta
                                   -----------------------
                                        M.I.  Garcia  Cuesta


                                   PENN  OCTANE  CORPORATION


                                   By   /s/J.B.  Richter
                                        ----------------
                                        Name:          J.B.  Richter
                                        Title:         President