Are you planning to put up a lending business and want to create a template for a promissory note to be signed by the borrower? Are you loaning money to your co-worker, and you want the details of the loan to be in writing?
If your answer is yes, then this guide is here to help you draft a promissory note.
DISCLAIMER: This article has been written for general informational purposes only and is not legal advice or a substitute for legal counsel. You should contact your attorney to obtain advice with respect to any particular issue or problem. The use of the information contained herein does not create an attorney-client relationship between the author and the user/reader.
What Is a Promissory Note?
A promissory note is a genuine document acknowledging a loan duly received and promising to pay the same on the date indicated and in accordance with the conditions agreed upon by the borrower and the lender. A person who signs a promissory note is bound to honor it as a legitimate obligation.
Generally, there are two types of promissory notes – negotiable and non-negotiable.
Under the Negotiable Instruments Law1, a negotiable promissory note is defined as an “unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed and determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to a maker’s own order, it is not complete until indorsed by him”.
A non-negotiable promissory note, on the other hand, is simply a document containing a promise by one person to pay another on the date indicated in the note and in accordance with the agreed conditions, e.g., payment of interest. A non-negotiable promissory note is not transferable to another person/payee.
Both are essentially the same as to its contents. The difference lies in its negotiability or transferability. A promissory note is negotiable if it can be transferred from one person to another, and it complies with the requirements under Sec. 1 of the Negotiable Instruments Law. A negotiable promissory note is in the same vein as a check.
How To Get a Promissory Note in 3 Easy Steps
Preparing a promissory note is easy with these simple steps:
1. Prepare the document
The details of a promissory note will depend on the complexities of your agreement. However, a promissory note should contain at least the following parts:
- Title of the document.
- The statement “For value received”, to indicate the maker has received the amount borrowed.
- The name of the maker. The maker is the person promising or signing the promissory note. You may include a statement that the maker is of legal age, the civil status, citizenship, and residence address.
- The statement of an unconditional promise to pay.
- The name of the payee. The payee is the person with whom the maker has promised to pay.
- The amount to be paid.
- Date when the said amount has to be paid, either on-demand or at some future time.
- Other conditions, if any. For example, paying at a particular location or with a certain interest.
- Name and signature of the maker.
- Name and signature of witness/es (optional).
- Acknowledgment – is the act of the person signing the document in going before a Notary Public and declaring it to be his or her act or deed (optional).
Please note that a promissory note is valid even without the signature of a witness or an Acknowledgment.
2. Print copies of the promissory note
Print at least two copies of the document, three should you decide to have it notarized – one for the maker, one for the payee, and one copy for the notary.
3. Go to the notary if you opt to have the document notarized
Editable Promissory Note Sample Templates (Free Download)
To save you the hassle of writing a promissory note from scratch, you may download the following samples and just edit the contents based on your agreement with the other party, and using the above/previous guide:
1. Simple Promissory Note (with no conditions).
2. Notarized Promissory Note (with the condition to pay monthly interest).
3. Notarized Promissory Note (with the condition to pay monthly interest, legal fees, and other requirements).
Frequently Asked Questions
1. Should a promissory note be notarized?
No. Notarization is not mandatory. However, in long lines of cases decided by the Supreme Court, the notarization of a document has a huge legal effect. It converts a private document to a public document, and it becomes admissible in court without further proof of its authenticity.
When a case is filed against the maker to honor the promissory note, the usual defense for non-payment is that his or her signature is forged; the maker did not understand the contents of the document he or she signed; the maker’s consent was vitiated, or was forced to sign the document.
If the promissory note is notarized, the maker cannot, later on, allege that he did not sign the document. As the holder of a notarized promissory note, you do not need to prove that the maker indeed executed or signed the document. It is authentic on its face.
2. Someone obtained a loan from me and executed a promissory note promising to pay me on or before a certain date. However, despite my repeated request to settle the loan, the borrower failed to do so. How can I enforce the promissory note?
You can send a demand letter ordering the borrower to pay the loan. If the borrower fails to settle the obligation despite demand, you may file a collection case in the appropriate court.
If you live within the same Barangay, you may also bring the matter to your Barangay for an amicable settlement.
3. Can I still collect from the borrower even if I lost the promissory note?
Yes. The obligation of the borrower to pay you the loan remains. The promissory note is only evidence of the existence of such an obligation. The obligation is extinguished only after payment.
4. Do I need a lawyer to make a promissory note?
No need for a lawyer to draft a promissory note for you. This guide and the templates provided are sufficient to help you make one. However, if you want the promissory note to be notarized, you need to go to a Notary Public near you.
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Thank you for this reference.
How much interest and penalty for missed payments is allowed under Philippine law.