Illinois 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

   Illinois caps interest at 9% per year in an ordinary written contract. (815 ILCS 205/4) A list of statutory exemptions, fourteen categories long, removes the cap entirely for a loan to a corporation, a business loan to a partnership, sole proprietorship, or similar business association, a loan secured by a mortgage on real estate, and several other categories, which may be priced at any negotiated rate. Where the cap does apply and is broken, the borrower can recover double the interest, discount, and charges paid, plus reasonable attorney's fees and court costs. (815 ILCS 205/6) Separately, a lender in the business of making loans who charges more than 9% APR on a non-exempt loan generally needs a license under the Consumer Installment Loan Act. (205 ILCS 670/1)

3. 3

   An Illinois promissory note does not need to be notarized or witnessed to be enforceable. Illinois Uniform Commercial Code Section 3-104 (810 ILCS 5/3-104) 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.

4. 4

   Confession-of-judgment clauses, which let the payee obtain a court judgment against the maker without filing a lawsuit, are not banned outright in Illinois. They are void and unenforceable, though, in any "consumer transaction," a loan or other disposition to an individual for primarily personal, family, or household purposes, a rule in place since September 24, 1979. (735 ILCS 5/2-1301(c))

5. 5

   You generally have 10 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in Illinois, or 10 years from a demand for payment on a demand note. (735 ILCS 5/13-206)

6. 6

   If an Illinois promissory note is secured by personal property rather than real estate, the lender generally needs to file a UCC-1 financing statement, typically with the Illinois Secretary of State, to protect its priority against other creditors. (810 ILCS 5/9-310)

7. 7

   Promissory notes are commonly used in Illinois for family loans, small business loans, and LLC capital-contribution loans. Since a corporate loan or a qualifying business loan is exempt from the 9% cap entirely, the applicable rate ceiling can look very different depending on who is borrowing and why.

Illinois Requirements for Promissory Note

• Notarization Not Required for Validity (Illinois Uniform Commercial Code 810 ILCS 5/3-104)

  Illinois does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 3-104'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.

• Maximum Legal Interest Rate (Illinois Interest Act 815 ILCS 205/4)

  In an ordinary written contract, the maximum is 9% per annum. A loan to a corporation, a business loan to a partnership, sole proprietorship, or similar business association, a loan secured by a mortgage on real estate, and several other statutorily listed categories are exempt from the cap entirely and may be priced at any negotiated rate.

• Negotiability Requirements (Illinois Uniform Commercial Code 810 ILCS 5/3-104)

  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 (Illinois Code of Civil Procedure 735 ILCS 5/13-206)

  Generally 10 years from a missed payment or the note's stated due date to sue to collect on a written promissory note; for a demand note, generally 10 years from a demand for payment.

• Confession of Judgment Restricted to Non-Consumer Loans (Illinois Code of Civil Procedure 735 ILCS 5/2-1301)

  A confession-of-judgment power is void and unenforceable in any consumer transaction, a loan for primarily personal, family, or household purposes, as of September 24, 1979. It remains usable in a business-purpose loan, subject to the venue rules in subsection (c).

• Consumer Installment Loan Act Scope (205 ILCS 670/1)

  A license from the Illinois Department of Financial and Professional Regulation is required only for a person engaged in the business of making loans who charges more than 9% annual percentage rate. An isolated private person-to-person promissory note at or below 9% does not trigger licensing.

• Secured Transaction Filing (Illinois Uniform Commercial Code 810 ILCS 5/9-310)

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

• Usury Penalty for Charging Above the Cap (Illinois Interest Act 815 ILCS 205/6)

  A borrower who is knowingly charged unlawful interest may recover, by action or defense, double the total interest, discount, and charges paid or contracted for, plus reasonable attorney's fees and court costs.