California Promissory Note
California promissory note template with the 10% usury cap and 4-year statute of limitations under state law. Free template. Attorney review available.
Introduction
A promissory note is a written, signed promise by one party, the maker, to pay a definite sum of money to another party, the payee, either on demand or by a set date. It's the paper trail behind a loan, whether it's a family loan, a small business loan, or a loan between friends, and it's what makes the debt legally enforceable if the maker doesn't pay. California caps the interest rate you can charge on most private loans. For a loan used primarily for personal, family, or household purposes, the maximum is 10% per year. For other loans, like a loan to a business, the cap is the higher of 10% or 5% plus a floating rate tied to the Federal Reserve Bank of San Francisco's discount rate. Several categories of lender, including banks and licensed finance lenders, are constitutionally exempt from these caps entirely. A California promissory note doesn't need to be notarized or witnessed to be enforceable, and as of 2023, confession-of-judgment clauses (a clause letting the payee get a court judgment without a lawsuit) are banned in California and unenforceable if included. You generally have 4 years from a missed payment or the note's due date to sue on a written note.
Key Things to Know
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A promissory note is a written, signed promise by one party (the maker) to pay a definite sum of money to another party (the payee), either on demand or by a set date.
- 2
For a loan used primarily for personal, family, or household purposes, California caps interest at 10% per year. For other loans (such as a loan to a business), the cap is the higher of 10% or 5% plus a floating rate tied to the Federal Reserve Bank of San Francisco's discount rate. (Cal. Const. Art. XV, Section 1)
- 3
Several categories of lender, including banks, credit unions, licensed finance lenders, and real estate brokers arranging loans secured by real property, are constitutionally exempt from the usury cap entirely. The cap applies to the general private person-to-person loan, not to every lender.
- 4
A California promissory note does not need to be notarized or witnessed to be enforceable. California Commercial Code Section 3104 lists what makes a note a valid negotiable instrument (an unconditional promise, a fixed amount, a signature, payable on demand or by a definite date), and notarization isn't one of the requirements.
- 5
Confession-of-judgment clauses, which would let the payee obtain a court judgment against the maker without filing a lawsuit, are banned in California as of January 1, 2023. A judgment by confession is unenforceable and cannot be entered in any California superior court. (Cal. Code Civ. Proc. Section 1132)
- 6
You generally have 4 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in California. (Cal. Code Civ. Proc. Section 337)
- 7
If a California promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement with the California Secretary of State to protect its priority against other creditors. (Cal. Com. Code Section 9310)
Key decisions before you file
Before you file a Promissory Note in California, a few decisions shape the document: which option to choose and what each one means. The Promissory Note guide walks through them.
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California Requirements for Promissory Note
For a loan primarily for personal, family, or household purposes, the maximum is 10% per annum. For other loans, the maximum is the higher of 10% per annum or 5% plus the Federal Reserve Bank of San Francisco discount rate. The default statutory rate absent a written contract rate is 7% per annum.
Generally 4 years from a missed payment or the note's stated due date to sue to collect on a written promissory note.
To be a valid negotiable instrument, a note must be an unconditional promise to pay a fixed amount, signed by the maker, and payable on demand or at a definite time.
As of January 1, 2023, a judgment by confession is unenforceable and cannot be entered in any California superior court. A promissory note should not include a confession-of-judgment or cognovit clause.
Numerous categories of lender, including banks, credit unions, industrial loan companies, licensed pawnbrokers, licensed personal property brokers, licensed finance lenders, and real estate brokers arranging loans secured by real property liens, are constitutionally exempt from the usury cap entirely. The cap applies to the general private person-to-person loan.
If a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the California Secretary of State to perfect and prioritize its security interest against other creditors.
California Financing Law licensing and disclosure requirements apply only to a lender "engaged in the business of" making consumer or commercial loans. An isolated private person-to-person promissory note does not trigger these requirements.
California does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 3104's list of what makes a note a valid negotiable instrument does not include notarization or witnessing; notarization is optional and used only for evidentiary purposes.
Frequently Asked Questions
For a loan primarily for personal, family, or household purposes, California caps interest at 10% per year. For other loans, such as a loan to a business, the cap is the higher of 10% or 5% plus a floating rate tied to the Federal Reserve Bank of San Francisco's discount rate. Several categories of lender, including banks and licensed finance lenders, are constitutionally exempt from the cap entirely.
No. California Commercial Code Section 3104 lists what makes a note a valid, enforceable negotiable instrument, and notarization isn't one of the requirements. Notarizing a note is optional and can help as evidence of who signed it, but it doesn't affect enforceability.
Include the principal amount, the interest rate (within California's usury cap), the repayment schedule, what counts as default, and the signatures of the maker and payee. Since confession-of-judgment clauses are banned in California, don't include one; the note relies on a regular lawsuit for enforcement if the maker defaults.
Yes, as long as it meets the basic requirements of a valid contract and, if it's meant to be a negotiable instrument, the elements in Commercial Code Section 3104: an unconditional promise to pay a fixed amount, a signature, and payment on demand or by a definite date. It doesn't need to be notarized to be enforceable.
An unsecured note relies only on the maker's promise to pay. A secured note is backed by collateral, and if it's secured by personal property rather than real estate, the lender generally needs to file a UCC-1 financing statement with the California Secretary of State to protect its priority against other creditors.
The payee can declare the remaining balance immediately due (if the note includes an acceleration clause) and can sue to collect. California banned confession-of-judgment clauses as of January 1, 2023, so the payee cannot get a judgment without filing a lawsuit; a judgment by confession is unenforceable and cannot be entered in any California superior court.
Generally 4 years from a missed payment or the note's stated due date, under California's statute of limitations for actions on a written contract (Code of Civil Procedure Section 337). Waiting too long can mean losing the right to sue on the note.
Yes. Promissory notes are commonly used for both family loans and business or LLC loans in California. The same usury cap and other rules generally apply, though the applicable interest-rate cap can differ depending on whether the loan is primarily for personal use or for another purpose like a business loan.