Promissory Note or Simple Loan Agreement

PROMISSORY NOTE

PHP [PRINCIPAL AMOUNT]

[CITY/MUNICIPALITY], Philippines
[DATE]

For value received, I, [BORROWER'S FULL NAME], of legal age, [civil status], Filipino, and residing at [BORROWER'S ADDRESS], promise to pay to the order of [LENDER'S FULL NAME], of legal age, [civil status], Filipino, and residing at [LENDER'S ADDRESS], the principal sum of Philippine Pesos [AMOUNT IN WORDS] (PHP [AMOUNT IN FIGURES]).

1. Interest. The principal amount shall earn interest at the rate of [INTEREST RATE]% per annum, computed from [START DATE] until full payment.

2. Maturity. The principal and accrued interest shall be paid in full on or before [DUE DATE].

3. Manner of Payment. Payment shall be made in lawful Philippine currency at [PLACE OF PAYMENT] or by deposit or transfer to the account designated in writing by the Lender.

4. Default. The Borrower shall be in default upon failure to pay any amount due on the maturity date, or upon violation of any written undertaking connected with this Note.

5. Acceleration. Upon default, the entire unpaid principal, accrued interest, penalties, attorney's fees, and costs of collection shall become immediately due and demandable without need of further demand.

6. Penalty and Costs. In case of default, the Borrower shall pay a penalty of [PENALTY RATE]% per month on the overdue amount, plus attorney's fees equivalent to [ATTORNEY'S FEES PERCENTAGE]% of the total amount due, and costs of collection.

7. Waiver. Acceptance by the Lender of partial or late payment shall not be deemed a waiver of any right under this Note, unless the waiver is in writing and signed by the Lender.

IN WITNESS WHEREOF, I have signed this Promissory Note on [DATE] at [CITY/MUNICIPALITY], Philippines.


[BORROWER'S FULL NAME]
Borrower

Signed in the presence of:

[WITNESS NAME]                         [WITNESS NAME]
Witness                                Witness

SIMPLE LOAN AGREEMENT

This Simple Loan Agreement is made and executed on [DATE] at [CITY/MUNICIPALITY], Philippines, by and between:

[LENDER'S FULL NAME], of legal age, [civil status], Filipino, and residing at [LENDER'S ADDRESS], hereinafter referred to as the "Lender";

- and -

[BORROWER'S FULL NAME], of legal age, [civil status], Filipino, and residing at [BORROWER'S ADDRESS], hereinafter referred to as the "Borrower."

The parties agree as follows:

1. Loan. The Lender lends to the Borrower, and the Borrower receives from the Lender, the sum of Philippine Pesos [AMOUNT IN WORDS] (PHP [AMOUNT IN FIGURES]).

2. Purpose. The Borrower shall use the loan proceeds for [GENERAL PURPOSE OF LOAN], unless otherwise consented to in writing by the Lender.

3. Release of Proceeds. The loan shall be released on [RELEASE DATE] by [cash/check/bank transfer] at [PLACE OR ACCOUNT DETAILS].

4. Interest. The loan shall bear interest at [INTEREST RATE]% per annum, computed from [START DATE] until full payment. Interest shall be payable [monthly/on maturity/other schedule].

5. Term and Payment. The Borrower shall pay the loan in [NUMBER] installment(s) as follows:

   Due Date              Amount Due
   [DUE DATE]            PHP [AMOUNT]
   [DUE DATE]            PHP [AMOUNT]
   [DUE DATE]            PHP [AMOUNT]

All payments shall be made in lawful Philippine currency at [PLACE OF PAYMENT] or through such bank account as the Lender may designate in writing.

6. Prepayment. The Borrower may prepay the loan in whole or in part before maturity, provided that accrued interest up to the date of actual payment shall also be paid, unless the Lender agrees otherwise in writing.

7. Default. The Borrower shall be in default if the Borrower fails to pay any installment when due, becomes insolvent, makes a false material representation in connection with this Agreement, or violates any material obligation under this Agreement.

8. Effects of Default. Upon default, the Lender may declare the entire unpaid balance, accrued interest, penalties, attorney's fees, and costs of collection immediately due and demandable.

9. Penalty. Any overdue amount shall bear a penalty of [PENALTY RATE]% per month, counted from the due date until full payment.

10. Attorney's Fees and Costs. If the Lender is compelled to enforce this Agreement, the Borrower shall pay attorney's fees equivalent to [ATTORNEY'S FEES PERCENTAGE]% of the total amount due, litigation expenses, and costs of collection.

11. Representations of the Borrower. The Borrower represents that the Borrower has full capacity to enter into this Agreement, received the loan proceeds, and undertakes to pay the loan according to its terms.

12. Notices. Notices shall be in writing and delivered personally, by courier, or by electronic mail to the addresses stated above or to such other address as a party may later designate in writing.

13. Governing Law and Venue. This Agreement shall be governed by Philippine law. Any court action arising from this Agreement shall be filed in the proper court of [CITY/PROVINCE], to the exclusion of other venues, subject to applicable rules on jurisdiction.

14. Entire Agreement. This Agreement contains the entire understanding of the parties on the loan and supersedes prior oral or written arrangements concerning the same subject.

IN WITNESS WHEREOF, the parties have signed this Simple Loan Agreement on [DATE] at [CITY/MUNICIPALITY], Philippines.


[LENDER'S FULL NAME]                   [BORROWER'S FULL NAME]
Lender                                 Borrower

Signed in the presence of:

[WITNESS NAME]                         [WITNESS NAME]
Witness                                Witness


ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES )
[CITY/MUNICIPALITY]          ) S.S.

BEFORE ME, a Notary Public for and in [CITY/MUNICIPALITY], Philippines, personally appeared:

Name                         Competent Evidence of Identity
[LENDER'S FULL NAME]         [TYPE OF ID] No. [ID NUMBER], issued on [DATE] at [PLACE]
[BORROWER'S FULL NAME]       [TYPE OF ID] No. [ID NUMBER], issued on [DATE] at [PLACE]

known to me and to me known to be the same persons who executed the foregoing Simple Loan Agreement, consisting of [NUMBER] pages, including this page on which this Acknowledgment is written, and they acknowledged to me that the same is their free and voluntary act and deed.

WITNESS MY HAND AND SEAL on [DATE] at [CITY/MUNICIPALITY], Philippines.


Notary Public

[NOTARY PUBLIC'S NAME]
Notarial Commission No. [COMMISSION NUMBER]
Until [COMMISSION EXPIRY DATE]
Roll No. [ROLL NUMBER]
PTR No. [PTR NUMBER], [DATE], [PLACE]
IBP No. [IBP NUMBER], [DATE], [PLACE]
MCLE Compliance No. [MCLE COMPLIANCE NUMBER]

Doc. No. [DOC NUMBER];
Page No. [PAGE NUMBER];
Book No. [BOOK NUMBER];
Series of [YEAR].

Nature and Function

A promissory note is a written promise by one person, called the maker, to pay a determinate sum of money to another person, called the payee or holder, either on demand or at a fixed or determinable future time. It is usually shorter than a loan agreement because the operative undertaking is the maker's promise to pay.

A simple loan agreement is the broader contract. In a mutuum, the lender delivers money or another consumable thing to the borrower, ownership passes to the borrower, and the borrower becomes bound to pay an equivalent amount of the same kind and quality. For money loans, the obligation is to pay money, not to return the identical bills or coins delivered.

The promissory note is commonly used as evidence of the debt, while the simple loan agreement commonly records the entire transaction: release of the proceeds, repayment schedule, interest, default, security, representations, and remedies. The two may be combined in one document if the borrower both acknowledges receipt of the loan and expressly promises to pay.

A loan is not generally required to be in writing for validity, but the written instrument is critical for proof, enforceability of interest, certainty of maturity, and preservation of remedies. Interest on a loan cannot be recovered unless it is expressly stipulated in writing.

Promissory Note as a Negotiable Instrument

A promissory note may be negotiable or non-negotiable. Negotiability is not a matter of label alone; it depends on the form and terms of the instrument. A negotiable promissory note must be in writing, signed by the maker, contain an unconditional promise to pay a sum certain in money, be payable on demand or at a fixed or determinable future time, and be payable to order or to bearer.

The promise must be unconditional. A statement identifying the transaction that gave rise to the note does not by itself destroy negotiability, but payment made subject to the terms of another contract may do so because the holder must then look beyond the instrument to determine the right to payment.

The amount must be certain in money. The note may still be certain even if it provides for interest, installment payments, acceleration upon default, exchange at a stated rate, or attorney's fees and collection costs in case payment is not made at maturity. What matters is that the principal debt is determinable from the instrument.

If the intended document is only ordinary evidence of a loan, the drafter should avoid words of negotiability such as "to order" or "to bearer" and may state that the note is non-negotiable, though assignable under ordinary civil law rules. If the intended document is negotiable, the language must be precise because negotiability affects transfer, defenses, and the rights of a holder in due course.

Distinction Between a Note and a Loan Agreement

Parties and Capacity

The parties must be identified with enough certainty to connect the obligation to the correct persons. For individuals, full name and address are usually sufficient. For juridical entities, the registered name, principal office, and representative capacity of the signatory should be stated.

A corporate borrower or lender acts through authorized officers or agents. The signature block should show that the signatory signs for the corporation and not in a personal capacity, unless personal liability as co-maker, surety, or guarantor is intended. The authority may come from the articles, bylaws, board resolution, secretary's certificate, or other competent authorization.

When several borrowers sign as co-makers, they are usually treated as directly and primarily bound on the note. If solidary liability is intended, it must be expressed in clear terms because solidarity is not presumed. Words such as "jointly and severally" or "solidarily" are used to make each borrower liable for the entire debt, without prejudice to reimbursement among themselves.

A guarantor undertakes to answer for the debt only if the principal debtor fails to pay and generally enjoys the benefit of excussion unless validly waived. A surety is directly, primarily, and solidarily liable with the principal debtor. Guaranty and suretyship are not presumed and must be express.

Essential Substantive Terms

A complete note or loan agreement must identify the debt, the parties, the amount, the time and manner of payment, the interest or absence of interest, the consequences of default, and the signatures of the parties to be charged. A simple instrument can be legally effective if these matters are clear.

Principal, Release, and Acknowledgment

The principal amount should be stated in figures and words. If there is a discrepancy, the document should contain a rule of control or the surrounding circumstances must be used to determine the true agreement. Clear drafting prevents later disputes over clerical errors.

The document should state whether the borrower has already received the proceeds or whether release is still subject to conditions. If the loan is perfected only upon delivery of money, an acknowledgment that the borrower received a specific amount on a specific date is strong evidence of the debt.

If charges, fees, or deductions are withheld from the proceeds, the instrument should distinguish the face amount of the loan from the net amount released. This matters because the borrower may contest interest, charges, or the true consideration if the paper amount does not match the amount actually received.

Interest

Conventional interest is the compensation agreed upon for the use or forbearance of money. It must be expressly stipulated in writing; otherwise, the lender may recover the principal but not agreed monetary interest for the period before demand or judgment.

The rate must be definite or determinable. A clause that merely says the loan shall bear "bank interest," "usual interest," or "prevailing interest" invites litigation unless it identifies the benchmark, adjustment date, and method of computation.

Although statutory usury ceilings have been suspended, courts may reduce interest that is unconscionable, iniquitous, or contrary to morals. An excessive rate is not protected merely because the borrower signed the note. The judicial response is commonly to reduce the rate to a reasonable one rather than to erase the principal debt.

When a monetary obligation is due and no valid conventional rate governs, the legal interest rate generally applies. The current legal rate for loans and forbearance of money is six percent per annum, and judgments for money also earn legal interest from finality until full satisfaction.

Interest on accrued interest is not recoverable unless there is a written stipulation on compounding or capitalization, or unless interest is imposed from judicial demand as allowed by law. A drafter who intends monthly compounding, annual compounding, or capitalization upon default must say so plainly.

Default Interest, Penalty, and Liquidated Damages

Default interest compensates the lender for the borrower's failure to pay on time. It should be distinguished from regular interest, which compensates the lender for the use of money before default. A note may provide both, but the rates and triggering dates must be clear.

A penalty clause fixes the consequences of breach in advance. Unless otherwise stipulated, the penalty substitutes for damages and interest for the breach, but the creditor may still recover the principal obligation. Courts may equitably reduce a penalty that is iniquitous or unconscionable, or when there has been partial or irregular performance accepted by the creditor.

Attorney's fees and collection expenses may be agreed upon, but the amount remains subject to judicial control. A percentage-based attorney's fee is not automatically awarded in full if it is disproportionate to the work done, the amount involved, or the circumstances of collection.

Maturity and Payment Terms

The maturity date may be a fixed calendar date, a fixed number of days or months from release, payment on demand, or payment by installments. If payment is by installments, each due date and amount should be stated or made determinable by a schedule.

An obligation payable on demand becomes due when demand is made, but prescription and delay issues can depend on the nature of the undertaking and the creditor's acts. A fixed maturity date is cleaner when the parties intend a definite repayment deadline.

Payment terms should state where and how payment will be made, whether by cash, check, bank deposit, electronic transfer, or another agreed method. If payment by check is accepted, delivery of the check does not itself discharge the debt until the check is encashed or credited, unless the parties clearly agree otherwise.

The parties may agree on the application of payments. In the absence of a controlling agreement or valid designation, payments are generally applied first to interest before principal when interest is due. A clear application clause prevents disputes over whether partial payments reduced principal or merely serviced interest.

Acceleration and Demand

An acceleration clause makes the entire unpaid balance immediately due upon the occurrence of a stated event, commonly non-payment of an installment, insolvency, false representation, impairment of collateral, or breach of another material undertaking. Without acceleration, default in one installment does not always mature future installments.

Delay generally begins from judicial or extrajudicial demand, unless demand is unnecessary because the law or stipulation so provides, time is the controlling motive for the obligation, or demand would be useless. If the creditor wants default consequences to arise automatically upon non-payment at maturity, the document should expressly state that demand is not necessary.

Even when demand is waived, a written demand remains useful as evidence of default, computation date, and notice of acceleration. For practical drafting, the instrument should identify when default occurs and when additional charges begin.

Currency and Medium of Payment

The obligation should state the currency of the loan and repayment. Philippine peso obligations are paid in Philippine legal tender. Foreign currency obligations may be valid when the parties so agree, and payment is ordinarily made in the currency stipulated, subject to applicable law and regulations.

If the parties allow payment in pesos for a foreign currency loan, the conversion date and exchange rate source should be identified. Without a clear conversion rule, disputes may arise from exchange fluctuations between release, maturity, demand, judgment, and actual payment.

Security and Supporting Obligations

A simple loan may be unsecured, but parties often support repayment through collateral, guaranty, suretyship, post-dated checks, assignment of receivables, or set-off rights. The loan instrument should not assume that a security arrangement is perfected merely because the debt is described.

A real estate mortgage must comply with formal requirements and must be registered to bind third persons. A chattel mortgage requires registration and the required affidavit of good faith. A pledge requires delivery of the thing pledged or the document of title. An assignment of receivables should identify the receivables and address notice to the account debtor when necessary.

Post-dated checks may evidence the mode of payment, but they are not the loan itself. A creditor should not treat the existence of checks as a substitute for a clear debt instrument, especially when interest, maturity, and default consequences must be proved.

Representations and Covenants

Representations are statements of existing fact made to induce the loan, such as identity, authority, ownership of collateral, absence of prior liens, or purpose of borrowing. False material representations may support rescission, damages, acceleration, or other remedies, depending on the agreement and facts.

Covenants are promises concerning future conduct, such as maintaining collateral, providing documents, refraining from further encumbrances, or notifying the lender of address changes. In a simple personal loan, covenants should be limited to matters that materially protect repayment.

For consumer and regulated lending transactions, disclosures of finance charges, interest computation, and total payment obligations may be required by special laws and regulations. The enforceability of the debt is analyzed separately from administrative, regulatory, or consumer protection consequences arising from defective disclosures.

Form, Signature, and Notarization

The signature of the borrower or maker is essential because the action on the instrument is against the person who undertook to pay. If several pages are used, signatures or initials on each page help show integrity of the document, although the binding undertaking normally appears at the end.

Witnesses are not generally essential to the validity of an ordinary loan note, but they may strengthen proof of execution. Notarization is not generally essential to the validity of a simple loan, but a notarized document is a public document, enjoys evidentiary weight as to due execution, and is easier to present in court.

A person signing for another should state the representative capacity. Ambiguous signatures may create disputes over whether the signatory is personally liable, merely an agent, a witness, or a corporate representative.

Non-Monetary and Protective Clauses

A venue clause may fix the agreed place of suit, subject to rules on exclusive venue and the court's authority over procedure. If exclusivity is intended, the clause should use exclusive terms, not merely permissive language.

A notice clause identifies where demands and communications must be sent and when they are deemed received. This is useful for default, acceleration, change of address, and proof of extrajudicial demand.

A severability clause may preserve the rest of the agreement if an interest, penalty, or remedy clause is declared invalid. It cannot save a clause that the law itself prohibits, but it helps prevent one defective stipulation from defeating the entire loan instrument.

A waiver clause should be specific. General waivers are strictly construed, especially when they affect substantial rights. Waiver of demand, notice, presentment, or protest should be written in terms suited to the instrument and the parties bound.

Remedies Upon Non-Payment

Upon non-payment, the lender may sue for collection of sum of money, enforce a valid security, proceed against sureties or guarantors according to the nature of their undertaking, or pursue other remedies allowed by the agreement and law. The creditor must still prove the debt, maturity, default, and the amount due.

If the loan is secured, the creditor's remedies depend on the security. Foreclosure enforces the lien on the collateral, while collection enforces the personal obligation. Election of remedies, deficiency claims, and procedural requirements must be examined according to the specific security and governing rules.

For a negotiable promissory note, the maker is primarily liable according to the tenor of the instrument. Presentment for payment is generally not needed to charge the maker, but it may be relevant to other parties such as endorsers and to the fixing of certain rights under negotiable instruments law.

Prescription runs according to the nature of the written obligation and the applicable limitation period. A clear maturity date, written acknowledgment, or partial payment may become important in determining when the cause of action accrued or whether the running of prescription was affected.

Drafting Quality in Practical Exercises

A legally useful promissory note or simple loan agreement is concise but complete. It states the debt, identifies the borrower and lender, records delivery or release of proceeds, fixes repayment, states interest in writing, defines default, and shows who is personally bound.

The document should avoid inconsistent labels. A paper called a "receipt" may still prove a loan if it contains an acknowledgment of indebtedness and promise to pay; a paper called a "promissory note" may fail as a negotiable instrument if it is conditional or not payable to order or bearer.

Precision matters most in the payment provisions. Ambiguity in amount, rate, maturity, compounding, default charges, and capacity of signatories is the usual source of litigation in loan documents. A short document with exact commercial terms is stronger than a long document with conflicting clauses.

In drafting, the legal effect must match the intended transaction. If the lender wants a direct action against all borrowers, the document should make them co-makers and solidary debtors. If the lender wants a supporting party liable only upon the borrower's default, the document should use guaranty language. If negotiability is desired, the note must stand on its own as an unconditional promise to pay money.