1) What a promissory note is (and what it isn’t)

A promissory note is a written promise by one party (the maker/borrower) to pay a definite amount of money to another (the payee/lender) either on demand or at a fixed/definite time, under stated terms.

It commonly functions as:

Evidence of a loan (proof that money was borrowed and must be repaid), and/or
A negotiable instrument (a special kind of “transferable” payment promise with rules under the Negotiable Instruments Law).

It is not automatically a security. A promissory note alone does not create a mortgage, pledge, chattel mortgage, or lien. If you want collateral, you need a separate (or integrated) security agreement with required formalities (e.g., notarization/registration where applicable).

It is also not a criminal case by itself. Nonpayment of a debt evidenced by a promissory note is generally civil, unless there are separate criminal elements (e.g., deceit amounting to estafa, or a bouncing check situation).

2) Key Philippine legal framework (high-level)

Promissory notes are commonly governed by:

Civil Code principles on obligations and contracts (loan, consent, cause/consideration, performance, default, damages).
The Negotiable Instruments Law (Act No. 2031) if the note is intended to be negotiable (or if it meets negotiability requirements regardless of intent).
Rules of Court and procedural rules on collection cases (including Small Claims where applicable).
Tax rules on Documentary Stamp Tax (DST) for debt instruments (relevant to admissibility and compliance).

Courts also apply jurisprudence on:

Interest (e.g., “legal interest” as default when there’s no valid stipulation; treatment of interest after judicial demand).
Unconscionable interest/penalties (courts can reduce excessive interest, penalties, and liquidated damages).
Attorney’s fees (even if stipulated, still subject to reasonableness and proof).

3) Negotiable vs. non-negotiable promissory notes (why it matters)

A. If you want it to be a negotiable promissory note

A promissory note is generally negotiable if it:

Is in writing and signed by the maker;
Contains an unconditional promise to pay;
Is for a sum certain in money;
Is payable on demand or at a fixed/definite time; and
Is payable to order (“Pay to the order of…”) or to bearer.

Why this matters: A negotiable note can be transferred so that a holder in due course may collect with stronger rights, and the maker’s defenses may be limited to “real defenses” (e.g., forgery, fraud in factum, illegality that voids the obligation, minority, etc.) rather than broader personal defenses.

B. If it’s non-negotiable

It still can be a perfectly valid contract and evidence of debt—but transfer/collection follows ordinary contract rules, and defenses are broader.

C. Practical drafting choice

If the lender might assign or sell the receivable, negotiability/transferability language matters. If the note is mainly for a private loan where transfer is unlikely, many parties draft a simpler “acknowledgment of debt with promise to pay” that may be non-negotiable but enforceable.

4) Essential drafting checklist (Philippine practice)

4.1 Parties and identifiers

Include complete details:

Full legal names
Citizenship (optional but useful)
Civil status (useful for marital property issues)
Addresses
Government ID details (or at least one ID reference)
For companies: exact registered name, position of signatory, authority (board resolution/secretary’s certificate when needed)

Tip: If the maker is married, clarify whether the obligation is personal or for the benefit of the family/conjugal partnership—this can affect enforcement against certain properties.

4.2 Amount and currency (“sum certain”)

State:

Principal amount in figures and words (avoid ambiguity).
Currency (PHP, USD, etc.).
Whether the amount is a loan received, balance of purchase price, or settlement amount.

If it’s a loan, consider adding a short receipt/acknowledgment clause:

“Maker acknowledges receipt of the principal amount…”

This helps if the borrower later claims no money was received.

4.3 Payment terms

Choose and describe clearly:

Option A: Installments

Installment amount
Due dates
Where/how to pay (bank transfer details, payee account, or payment place)
Allocation rule: payments apply first to penalties, then interest, then principal (common), or another sequence you prefer

Option B: Lump sum at maturity

One due date and amount

Option C: On demand

Payable upon written demand; define what constitutes valid demand and when it’s deemed received

Be explicit about business days, cut-off times, and the effect of partial payments.

4.4 Interest (and how Philippine courts treat it)

Interest is not presumed. If you want contractual interest, it should be expressly stipulated in writing. Specify:

Rate (e.g., “__% per annum”)
Basis (simple vs compounding; most private notes use simple interest)
Accrual start date
Payment timing (monthly, with installments, or due at maturity)

If interest is missing or invalid: courts may apply legal interest (commonly referenced at 6% per annum in modern jurisprudence for many monetary judgments, depending on the period and nature of the obligation).

Unconscionable rates: Even without a statutory usury ceiling in many modern contexts, Philippine courts can reduce interest and penalties that are iniquitous/unconscionable.

4.5 Late payment charges, penalties, and liquidated damages

These are separate from interest. Draft carefully:

Define “late” (e.g., not credited by 5:00 PM on due date)
Penalty rate and basis (per month, per annum, flat fee)
Cap or reasonableness guardrails (helps survivability in court)

Civil Code safety valve: Courts may reduce penalties/liquidated damages if they are inequitable.

4.6 Default and acceleration clause

A strong note defines:

Events of default (missed payment, insolvency, misrepresentation, breach of covenants, etc.)
Cure period (optional)
Acceleration: upon default, entire outstanding principal + accrued interest + penalties become due and demandable

Acceleration should be clear; otherwise, the lender may be stuck collecting only overdue installments at first.

4.7 Attorney’s fees and costs

A common clause: borrower pays attorney’s fees equivalent to a percentage of the amount due, plus costs.

In practice:

Courts still look for reasonableness and may require proof of basis.
Avoid extreme percentages; overly punitive clauses are more likely to be reduced.

4.8 Waivers and notices

Common waivers:

Waiver of presentment/demand/notice of dishonor (more relevant to negotiable instruments)
Waiver of notice of default (still define fairness)
Recognition that written notice sent to the stated address is effective

Be careful with overly broad waivers. Courts favor clear, fair notice mechanics.

4.9 Venue and jurisdiction clauses (litigation planning)

You can stipulate venue (where suit may be filed) within limits of procedural rules and public policy.

Common approach:

Provide that suits may be filed where the lender resides or where the borrower resides, “at the option of the creditor”—though enforceability depends on whether the clause is exclusive and whether it’s consistent with rules on venue and fairness.

4.10 Co-maker, surety, or guarantor (credit enhancement)

If the lender wants another person liable:

Co-maker / solidary debtor

Must clearly state solidary liability (“joint and several”)
Practical effect: lender can proceed against co-maker without first exhausting the borrower

Guarantor

Liability is typically subsidiary; lender may need to exhaust principal debtor’s assets unless benefit of excussion is waived and the guaranty is effectively a suretyship

Surety

Surety is directly and primarily liable like a solidary debtor; this is stronger for enforcement

Draft the role explicitly; don’t rely on labels alone.

4.11 Security/collateral (if any)

If the note is secured, it’s usually paired with:

Real estate mortgage (needs proper formalities and registration)
Chattel mortgage (registration)
Pledge (delivery)
Assignment of receivables (notice, documentation)
Post-dated checks (collection leverage, but with compliance risks)

Don’t assume a “secured” label in the note creates the security interest by itself.

4.12 Notarization (is it required?)

A promissory note does not have to be notarized to be valid.

However, notarization often helps because:

A notarized document becomes a public document with stronger evidentiary weight (presumption of due execution).
It reduces signature/authentication disputes.

If there are security instruments (mortgage, chattel mortgage), notarization/registration may be essential.

4.13 Documentary Stamp Tax (DST) and admissibility risk

Debt instruments (including many promissory notes) may be subject to DST under Philippine tax law.

Practical consequences often include:

Potential tax penalties/interest for noncompliance; and
Possible admissibility issues in court for unstamped taxable documents until proper stamps are affixed/settled (courts may allow later compliance, but it can delay proceedings).

For lenders handling many notes, DST compliance should be part of process.

4.14 Avoid problematic provisions

Confession of judgment / cognovit-type clauses (where borrower заранее “authorizes” judgment without trial) are generally disfavored/invalid as against public policy.
Overly oppressive waivers that eliminate all notice/opportunity can be attacked.
Ambiguous “interest per month” without clarifying whether it’s nominal/effective can trigger disputes.

5) A practical drafting structure (detailed template outline)

Below is a robust structure you can adapt. Use placeholders and ensure consistency.

Title: “PROMISSORY NOTE” (or “ACKNOWLEDGMENT OF DEBT WITH PROMISE TO PAY”)
Date and place of execution
Promise to pay
- “For value received, I/we promise to pay…”
Payee
Principal amount
Interest
- Rate, basis, accrual, payment schedule
Payment schedule
- Installments/lump sum/demand mechanics
Application of payments
Default definition
Acceleration clause
Late charges/penalties
Attorney’s fees and costs
Waivers and notices
Assignment/transfer clause (if relevant)
Governing law: Philippines
Venue clause
Signatures

Maker/borrower signature over printed name
Spouse consent/signature if needed (case-specific)
Co-maker/surety/guarantor signature with explicit solidary/surety language

Witnesses
Acknowledgment (notary block) (optional but recommended in many cases)

6) Enforcing a promissory note in the Philippines (step-by-step)

Step 1: Confirm the maturity/default and compute the claim

Prepare a clear computation:

Principal outstanding
Accrued interest (contractual or, if none/invalid, potential legal interest basis)
Penalties (if stipulated and reasonable)
Less payments made (with dates and ORs/bank proofs)

Maintain a ledger and supporting proof (receipts, bank transfer confirmations, messages acknowledging debt).

Step 2: Make a proper demand (especially for “on demand” notes)

For demand notes, demand is often essential to fix the due date and default.

For term notes, demand is still useful to:

Establish extrajudicial demand
Support claims for interest from demand date (where applicable)
Show good faith and readiness to litigate if needed

Best practice for demand:

Written demand letter stating amount due, computation summary, deadline to pay, and payment instructions
Deliver by a method you can prove: courier with receipt, registered mail, personal service with acknowledgment, or email if your contract recognizes it (still keep proof)

Step 3: Check if Barangay conciliation is required

Under the Katarungang Pambarangay system, many disputes between individuals residing in the same city/municipality may require barangay-level conciliation before going to court, subject to exceptions (e.g., certain parties, urgency, government involvement, jurisdictional exceptions, or where parties reside in different localities).

If required and you skip it, the case can be dismissed or delayed.

Step 4: Choose the correct court procedure

A. Small Claims (where eligible)

If the action is purely for payment of money and falls within the Small Claims rules and threshold (which can be updated by the judiciary over time), the process is faster:

No lawyers required in hearings for parties (with limited exceptions)
Simplified forms and timelines

Small Claims is often ideal for straightforward promissory note collections.

B. Regular civil action for collection of sum of money

If not eligible for Small Claims:

File a civil action for collection (and damages if applicable).
The court with jurisdiction depends primarily on the amount (exclusive of interest, damages, attorney’s fees—subject to procedural rules).
Venue is generally based on where plaintiff or defendant resides, unless a valid venue stipulation applies.

Step 5: Prepare for typical defenses

Common borrower defenses include:

No consideration / money not received (counter with receipt clause, bank transfer proof, acknowledgments)
Payment or partial payment (counter with receipts/ledger)
Forgery or signature denial (notarization helps; otherwise prepare witness or handwriting evidence)
Unconscionable interest/penalties (court may reduce; draft reasonably and justify computation)
Novation (claim that terms were changed; avoid informal changes without written addendum)
Prescription (written contract actions commonly prescribe in 10 years from accrual; compute from due date or demand/maturity depending on note terms)

Step 6: Evidence that usually wins promissory note cases

Courts tend to focus on:

Original promissory note (and proof of authenticity)
Proof of consideration/loan release (bank transfer, receipt, acknowledgment, messages)
Proof of default (missed due date, bounced payments)
Proof of demand (especially for demand notes)
A clean, transparent computation of what is being claimed

Step 7: Judgment, interest, and execution

If you obtain judgment and the debtor still does not pay:

The lender moves for execution (sheriff enforcement).
Collection may include garnishment of bank accounts (subject to rules), levy on property, etc., depending on what assets exist and what exemptions apply.
Interest may continue to accrue based on the judgment terms and prevailing rules.

7) Special situations and practical cautions

7.1 Post-dated checks as payment support

Borrowers sometimes issue post-dated checks for installments.

If a check bounces, the lender may have remedies involving the check (including potential criminal exposure for the issuer in specific circumstances), but the promissory note claim remains civil.
Handle checks carefully; comply with notice requirements and documentation if pursuing check-based remedies.

7.2 Debt collection conduct

Aggressive or harassing collection tactics can create legal risk (civil, administrative, and potentially criminal depending on conduct). Keep communications professional and document-driven.

7.3 Corporate borrowers

If the maker is a corporation:

Ensure the signer has authority.
Consider obtaining a suretyship from owners/officers if corporate assets are thin.
Ensure the note clearly binds the corporation, not just the signer personally.

7.4 Amendments and restructuring

If you restructure:

Execute a written addendum or replacement note.
Address whether the old note is canceled or remains effective.
Keep payment history and clear novation language to avoid later confusion.

8) Drafting “survivability” tips (what makes courts more likely to enforce as written)

Clarity beats cleverness: define dates, rates, and triggers in plain language.
Reasonable economics: keep interest/penalties defensible.
Paper the loan release: proof of receipt is as important as the promise to pay.
Notarize where feasible: reduces signature/duress disputes.
Plan the procedure: make it Small Claims-ready if your typical loan sizes fit.
Keep a clean audit trail: demands, computations, receipts, and acknowledgments.

9) A concise “model” promissory note clause set (illustrative)

Promise to Pay. For value received, I/We, [MAKER NAME], promise to pay [PAYEE NAME] the principal amount of PHP [AMOUNT IN FIGURES] ([AMOUNT IN WORDS]) Philippine currency.

Interest. The principal shall bear interest at __% per annum, computed on a simple interest basis, accruing from [DATEA date] until fully paid.

Payment. The obligation shall be payable in [] installments of PHP [] due every [__] of the month starting [date], with the final installment due on [date], payable via [mode/place].

Default and Acceleration. Failure to pay any amount when due constitutes default. Upon default, the entire outstanding balance, including accrued interest and applicable charges, shall become immediately due and demandable.

Penalty. Amounts unpaid when due shall incur a penalty charge of __% per month until paid, subject to applicable law and judicial reduction if deemed iniquitous.

Attorney’s Fees and Costs. In case of collection, Maker shall pay attorney’s fees equivalent to __% of the total amount due, plus costs of suit, subject to court determination of reasonableness.

Governing Law and Venue. This Note shall be governed by Philippine law. Venue for actions arising from this Note shall be in [city], without prejudice to applicable rules.

(Signature blocks; co-maker/surety blocks if any; witnesses; notarization block if used.)

This illustrative set is not a substitute for aligning terms with the real transaction facts (release date, payment mechanics, security documents, and party capacities).

10) Summary of the “enforceability essentials”

A promissory note is easiest to enforce when it has:

A clear written promise, signed by the maker (and solidary parties if any),
Definite amount and due dates/demand mechanics,
Written and reasonable interest/penalties,
Proof of money released/consideration,
Proper demand and documentation of default,
Compliance-aware handling (including DST and any required pre-filing conciliation where applicable),
A litigation path that fits the claim (Small Claims vs regular collection case).