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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:
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:
Manner of Payment
The user can choose among three ways to pay the promissory note:
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.
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.
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