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Promissory Note

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Last revision 2 weeks ago
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Promissory Note

A Promissory Note is an unconditional promise in writing made by one person (the "maker") in favor of another (the "payee") promising to pay an amount of money on demand or at a fixed or determinable future time. It must be signed by the maker and delivered to the payee.

A promissory note may be signed by more than one person. All persons who sign the promissory note, except those who are signing in a representative capacity (meaning they are signing on behalf of a maker), are liable to pay the amount of money stated in the promissory note. However, the liability of the persons signing the promissory note can either be joint or solidary.

The liability is joint if the makers will each be liable for a portion of the amount on the promissory note. This means that the payee cannot demand more than the portion that they are liable for.

The liability is solidary if each maker can be made liable to pay the entire amount on the promissory note. If one maker pays the entire amount, the maker who paid can ask for payment from the other makers.


Example: A, B, and C sign a promissory note for P15,000.00 to be paid as follows:

A: P10,000.00
B: P3,500.00
C: P1,500.00

If the liability is joint, the payee can only collect the amounts as stated above from each maker. However, if the liability is solidary, the payee can collect the whole amount of P15,000.00 from either A, or B, or C.

For a more detailed agreement on the payment of a loan, a Loan Agreement should be used.


How to use this document


I. General Information

The user will be asked to enter the following information:

  • the date of the signing of the promissory note
  • the number of makers and their names
    • if a representative will sign on behalf of a maker, the user should also enter the full name of the representative. If the representative will also sign the promissory note as a maker, he should sign twice to show both capacities of representative and maker.
  • the name of the payee
    • the user can choose whether the promissory note is negotiable. A negotiable promissory note means that the payee can transfer the note (by indorsement) to another person and the maker will have to pay the amount on the note to the transferee. The indorsement must be written on the promissory note or upon a paper attached thereto. The signature of the indorser, without any other words, is a sufficient indorsement. The indorsement is completed by delivery.
      • (e.g. A made a promissory note to pay B P10,000.00. If the note is negotiable, B can indorse the note to C by signing the note and delivering to C. Once indorsed, A will now have to pay C the P10,000.00. If the note is not negotiable, B cannot transfer the note by indorsement to any other person.)
  • the amount to be paid
  • the address of the place where the payments will be made.

Manner of Payment

The user can choose among three ways to pay the promissory note:

    • One lump sum payment
      • the entire amount will be paid at once on a set date
        • (e.g. P15,000.00 to be paid on 23 January 2019)
      • If the payment will be made in one lump sum payment, the user will be asked the date when the maker should pay the principal amount.
    • Equal installments
      • that the amount on the promissory note will be paid in equal amounts over a set number of installment payments
        • (e.g. P15,000.00 will be paid in 3 equal installments of P5,000.00).
      • If the manner of payment will be in equal installments, the user will be asked for the date when the payments will start
    • Equal installments with lump sum on due date
      • that the amount on the promissory note will be paid in equal installments however, the last payment will be an amount that is different from the amounts paid in the installments
        • (e.g. P15,000.00 will be paid on 5 equal installments of P2,000.00 and the balance of P5,000.00 will be paid on 23 January 2019)
      • If the manner of payment will be in equal installments with lump sum on due date, the user will be asked to provide the date when payments will start and the date when the lump sum should be paid.

If the manner of payment will be in installments, the user will be asked whether a penalty clause will be included. The penalty clause will require the payment of the entire unpaid amount if the maker fails to make an installment payment.


II. Type of Obligation

If there is more than 1 maker, the user will be asked whether the liability of the makers will be joint or solidary, as discussed above. If the liability will be joint, the user will be asked to enter the amounts that each maker is liable for.


III. Interest

The user will also be asked to choose whether the maker will have to pay an interest on the principal amount and, if so, the rate of monthly interest. The interest rate should not be excessive or exorbitant. Whether a interest rate is excessive or exorbitant is for the courts to decide however there are cases where interest rates of 3% per month and higher have been decided as excessive, iniquitous, unconscionable and exorbitant and have been reduced.


IV. Final Steps

Once the document is completed, the user should print a copy of the promissory note to be delivered to the payee. All the makers should sign the promissory note. Only those who signed the promissory note as makers shall be liable to pay the principal amount.


Applicable Law

The law on obligations and contracts is generally governed by the Civil Code of the Philippines. If the instrument is negotiable, the Negotiable Instruments Law (Act No. 2031) applies.


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