Delaware Promissory Note

Introduction

Key Things to Know

1. 1

   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. 2

   For a loan of $100,000 or less, Delaware caps interest at 5% per year over the Federal Reserve discount rate (the floating benchmark rate the Fed charges banks), rather than at a fixed percentage. For a loan over $100,000 that isn't secured by the borrower's principal residence, Delaware places no limit on the interest rate at all. (6 Del. C. Section 2301)

3. 3

   Delaware's test for a valid note, set out in 6 Del. C. Section 3-104, is an unconditional promise to pay a fixed amount, a maker's signature, and payment on demand or by a definite date. A notary stamp or witness signature is not on that list, so leaving one off does not make the note unenforceable.

4. 4

   Delaware permits a confession-of-judgment clause (a warrant of attorney letting the payee ask the court to enter judgment against the maker without a full lawsuit) in a promissory note. The clause is entered through the prothonotary and comes with built-in protections: notice to the maker, a preserved right to raise defenses that were unknown at signing or arose later, and an automatic stay of execution until the maker has a chance to be heard. (10 Del. C. Sections 2306 and 3908)

5. 5

   A lawsuit to collect on a written promissory note in Delaware generally must be filed within 6 years of a missed payment or the note's due date. That's a longer window than Delaware's ordinary 3-year limit for a general written promise; the 6-year period applies specifically to promissory notes and bills of exchange. (10 Del. C. Section 8109)

6. 6

   If a Delaware promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement, typically with the Delaware Secretary of State, to protect its priority against other creditors. (6 Del. C. Section 9-310)

7. 7

   Promissory notes are commonly used in Delaware for family loans, business loans, and loans between friends. A person who makes no more than 5 loans in any 12-month period isn't considered to be "in the business" of lending, so an occasional private note like this generally falls outside Delaware's Licensed Lenders licensing rules. (5 Del. C. Sections 2201-2202)

Delaware Requirements for Promissory Note

• Maximum Legal Interest Rate (Delaware Code Title 6, Section 2301)

  For a loan of $100,000 or less, the maximum is 5% per year over the Federal Reserve discount rate. Where there is no expressed contract rate, the same 5%-over-discount-rate figure applies as the default legal rate.

• Usury Penalty and Borrower Remedies (Delaware Code Title 6, Section 2304)

  A borrower charged more than the lawful rate is not required to pay the excess and may deduct it from any debt owed. A borrower who already paid excess interest may recover 3 times the excess interest collected, or $500, whichever is greater, if suit is brought within 1 year.

• Negotiable Instruments Requirements (Delaware Code Title 6, § 3-104)

  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.

• Statute of Limitations (Delaware Code Title 10, § 8109)

  An action on a promissory note generally must be brought within 6 years of accrual (a missed payment or the note's due date). That is longer than Delaware's ordinary 3-year period for a general written promise (10 Del. C. Section 8106(a)).

• No Interest-Rate Limit Above $100,000 (Delaware Code Title 6, Section 2301(c))

  Delaware places no limit on the interest rate charged for a loan exceeding $100,000 where repayment is not secured by a mortgage against the borrower's principal residence.

• Secured Transaction Filing (Delaware Code Title 6, Section 9-310)

  If a note is secured by personal property, the lender generally must file a UCC-1 financing statement, typically with the Delaware Secretary of State, to perfect and prioritize its security interest against other creditors.

• Notarization Not Required for Validity (Delaware Code Title 6, Section 3-104)

  The statutory checklist for a valid Delaware note (unconditional promise, fixed amount, signature, payment on demand or by a definite date) does not include a notary stamp or witness signature; adding one is optional and useful only as evidence of who signed.

• Confession of Judgment Permitted (Delaware Code Title 10, Sections 2306 and 3908)

  Delaware allows a confession-of-judgment clause in a note, entered through the prothonotary, subject to statutory notice, unwaived-defense, and automatic-stay protections for the maker. Including the clause is optional, not required.