Promissory Note California (Key Elements: All You Need To Know)

What is a Promissory Note California?

How do you write one?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

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What Is A Promissory Note California 

A “promissory note California” refers to a legal document signed between a lender and a borrower in California.

In essence, a promissory note is an agreement where one party borrows money from another party for a specific period of time, where it must be paid back based on certain defined conditions, and where the borrower pays interest on the sums borrowed.

Generally, there are two types of promissory notes:

When the promissory note is said to be “secured”, it means that the borrower agrees to provide a security or collateral to guarantee the repayment of the debt obligation.

When the promissory note is “unsecured”, that means the lender is lending an amount or something to the borrower and accepts the borrower’s promise to pay back the debt.

Just like any other legally binding contract, anyone entering into a promissory note should carefully read its terms and conditions to ensure it is clear and adequately reflects the terms of the loan.

In the event of default, the creditor or borrower can legally pursue the matter and seek the enforcement of the contract or note.

How To Draft A Promissory Note

A promissory note is a legal agreement between a lender and a borrower and will contain different clauses reflecting the content of the agreement.

A simple promissory note in California will have the following key elements:

  • Lender’s name and address 
  • Borrower’s name and address 
  • The amount borrowed (principal)
  • The interest rate 
  • Payment schedule or obligations
  • The execution date
  • The effective date 
  • Lender’s signature
  • Borrower’s signature
  • Witness name and signature 

Depending on the complexity of the transaction, additional clauses can be included in the promissory note giving comfort to both parties, such as:

  • Default provisions
  • Acceleration clause
  • Prepayment clause 
  • Waiver clause 
  • Severability clause
  • Integration clause
  • Notice provision 
  • Governing law 
  • Conflicting terms clause 
  • Attorney fees clause 
  • Co-signer identification (if any)
  • Default interest clause 

If the promissory note is secured, then it’s important to include provisions indicating how the collateral may be realized by the lender and in what circumstances.

To complete the execution of the promissory note, a witness must sign, date, and indicate his or her name on the document.

There are many sample promissory notes and templates in California that can be found to get a sense of its content. 

However, it’s important that you carefully evaluate the different aspects of the note to ensure you comply with the California laws and are well protected.

California Promissory Note Requirements

A promissory note, although the name suggests is a promise, has the same legal consequences as a legally binding contract.

In other words, a “promissory note” is a type of contract.

In a promissory note, the borrower agrees or pledges to pay the lender the borrowed sums in accordance with the payment terms set out in the note.

In California, certain promissory notes are required to be in writing in accordance with Section 1624(a) of the California Civil Code.

For instance, an agreement that cannot be performed within a year from the contract date (unless only one party is obligated to perform) or that involves the sale of goods over $500 will need to be in writing.

In addition, an oral promissory note is a legal instrument that is legally binding and enforceable as a written promissory note.

Just like the formation of any contract, the promissory notes are valid and legally enforceable when:

  • There is mutuality
  • There is consideration
  • There’s an offer and acceptance 
  • Parties have legal capacity 
  • The object of the contract is legal 

The actual promissory note will generally have, at a minimum, the following components:

  • Identification of the lender
  • Identification of the borrower
  • Amount borrowed 
  • Payment date
  • Signature block 

Usury Rate in California

A promissory note is a document intended to govern the relationship between a borrower and a lender.

In this context, the parties will generally agree that the lender will lend a certain sum of money in exchange for interest fees.

Establishing the proper interest will depend on various factors assessed by the lender such as the borrower’s risk profile, the amount of money borrowed, the term of the loan, and so on.

It’s important to remember that under California laws (Article XV, Section 1 of the California Constitution), rates cannot exceed 10% per year on loans for personal, family, or households.

Some financial institutions are exempt from the usury laws and can charge rates that are much greater than 10% on credit cards or other debt obligations.

It’s important for borrowers and lenders to consult a lawyer, accountant, or professional to ensure they agree on interest rates within the ranges legally authorized.

Secured Promissory Note California

In certain cases, lenders will want more than a mere promise from the borrower to ensure they get their money back.

That’s when the lender will ask for a security or collateral asset.

For an unsecured promissory note, in the event of default, the lender will need to legally pursue the defendant and obtain a judgment allowing it to go after the defendant’s assets.

This takes time and is expensive.

To avoid such complexities, the lender may require that the borrower pledge to provide an asset to guarantee the repayment of the loan.

In the event of default, the lender will be able to go after the assets pledged that are typically real estate properties or personal properties.

A mortgage or deed of trust is typically signed to provide security on a real estate property and a UCC-1 Financing Document is used for pledging personal properties.

California Promissory Note Takeaways 

So what is the legal definition of Promissory Note California?

Let’s look at a summary of our findings.

Promissory Note California

  • A California promissory note is a written document outlining the terms and conditions of a loan between two or more parties
  • A promissory note is a legally binding and enforceable contract proving the existence of a loan or debt obligation 
  • Promissory notes can be secured (lender is given property or asset as security in the event of borrower default) or unsecured (no property is given by the borrower in the event of non-payment)
  • Contracts in California are governed by the California Civil Code where in some cases the note can be orally formed and in other cases, a written contract will be imposed 
Amortization schedule 
Bilateral contract 
Bond instruments 
Contract elements
Contractual covenants 
Contractual representations 
Contractual warranties 
Deed of trust 
Interest rate 
Letter of credit 
Mortgage agreement 
Non-compete agreement
Non-disclosure agreement 
Notes receivable 
Printed name 
Promissory note California template 
Real estate transaction 
Release and discharge 
Signature block 
Wet signature
Attorney fees 
Bank loan
Bill of sale 
Contract language 
Credit cards
Creditor’s claim 
Lease agreement 
Letter of credit 
Line of credit 
Power of attorney 
Quitclaim deed
Real estate brokerage 
Sublease agreement 
Usury rate