Promissory Note
The promissory note is a document signed by the borrower, containing, among other provisions, the loan amount and a promise to pay the loan amount. A borrower’s counsel needs to be aware of the requirements for a promissory note, but it is the lender’s counsel who drafts the promissory note and who is ultimately responsible if a promissory note fails to satisfy the elements of an enforceable promissory note.
The party who signs the promissory note (the “maker”) agrees to pay an amount (the “principal”) to the order of another party (the “holder” or the “payee”). If a note is “negotiable,” the holder may transfer the right to receive payments to a third party, and that third party may enforce the promissory note and the other loan documents.
To be enforceable, a promissory note must be signed by the maker and contain, among other terms and conditions: (1) an unconditional promise or order to pay a sum in money; (2) a period of time over which the sum must be repaid (or a statement that the note is payable upon demand); and (3) an interest rate that will be assessed on the principal balance over the course of the loan. In addition, a promissory note must be signed the maker. The promissory note does not need to be notarized (but the deed of trust, as discussed later, will need to be notarized if the holder intends to record the deed of trust).
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