PROMISSORY NOTE

$50,000                 New York, New York                 October 29, 1996


 FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware Corporation
 ("Maker"), promises to pay to JAMES MULHOLLAND ("Holder") at such place
 as Holder may designate in writing, the entire principal sum of
 Fifty Thousand Dollars ($50,000), together with interest at the rate
 of ten percent (10%) per annum, on November 7, 1997
 (the "Payment Date"), at which time all principal and interest shall
 be due and owing.  In the event the Company receives in excess of
 two hundred fifty thousand ($250,000) dollars in connection with an
 offering of Maker's securities prior to the Payment Date, the Company
 shall utilize one-half of the proceeds from such sale to satisfy the
 Promissory Note.  In the event such payment does not fully satisfy
 the Promissory Note, Maker shall pay the balance on the Payment Date.

 All payments of principal and interest hereunder shall be payable in
 lawful money of the United States.

 Maker shall be in default hereunder, at the option of Holder,
 upon the occurrence of any of the following events:  (i) the failure
 by Maker to make any payment of principal or interest when due
 hereunder, and such failure shall have continued for a period of
 more than ten (10) days;  (ii) the entering into of a decree or order
 by a court of competent jurisdiction adjudicating Maker a bankrupt or
 the appointing of a receiver or trustee of Maker upon the application
 of any creditor in an insolvency or bankruptcy proceeding or other
 creditor's suit; (iii) a court of competent jurisdiction approving
 as properly filed, a petition for reorganization or arrangement
 filed against Maker under the Federal bankruptcy laws and such decree
 or order not being vacated within thirty (30) days; (iv) the
 pendency of any bankruptcy proceeding or other creditors' suit against
 Maker; (v) a petition or answer seeking reorganization or
 arrangement under the Federal bankruptcy laws with respect to Maker;
 (vi) an assignment for the benefit of creditors by Maker;
 (vii) Maker consents to the appointment of a receiver or trustee in an
 insolvency or bankruptcy proceeding or other creditors' suit;
 (viii) the existence of any uncured event of default under the terms
 of any instrument in writing evidencing a debt to someone other than
 Holder, provided, that Maker is not contesting in good faith by
 appropriate proceedings such uncured event of default;
 (ix) the existence of any judgment against, or any attachment of
 property of Maker; or (x) any other condition which, in the good
 faith determination of Holder, would materially impair the timely
 repayment of this Note.

 Upon the occurence of any event or condition of default hereunder,
 or at any time thereafter, Holder at his option may accelerate the
 maturity of this Note and declare all of the indebtedness or any
 portions thereof to be immediately due and payable, together with
 accrued interest thereon, and payment thereof may be enforced by
 suit or other process of law.  

 If this Note is not paid when due, whether at maturity or by
 acceleration, Maker agrees to pay all reasonable costs of collection
 and such costs shall include without limitation all costs, attorneys'
 fees and expenses incurred by Holder hereof in connection with any
 insolvency, bankruptcy, reorganization, arrangement or similar
 proceedings involving Holder, or involving any endorser or guarantor
 hereof, which in any way affects the exercise by Holder hereof of its
 rights and remedies under this Note.

 Presentment, demand, protest, notices of protest, dishonor and
 non-payment of this Note and all notices of every kind are hereby waived.

 The terms "Maker" and "Holder" shall be construed to include
 their respective heirs, personal representatives, successors,
 subsequent holders and assigns.

 Regardless of the place of execution or performance, this letter and
 the Note shall be governed by, and construed in accordance with, the
 laws of the State of New York without giving effect to such state's
 conflicts of laws provisions.  Each of the parties hereto irrevocably
 consents to the jurisdiction and venue of the federal and state courts
 located in the State of New York, County of New York.



PENN OCTANE CORPORATION






By: /s/ J.B. Richter

Chairman