Montana 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

   If the maker and payee fix a rate in writing, Montana caps it at the greater of 15% per year or 6 percentage points above the prime rate the Federal Reserve publishes for bank loans (measured 3 business days before signing). The same cap applies no matter the loan's size or purpose. Absent a written rate, the default legal rate is 10% per year. A "regulated lender" (a bank, credit union, licensed consumer lender, and similar) is exempt from the cap entirely. (Montana Code Annotated Section 31-1-107; Section 31-1-106; Section 31-1-112)

3. 3

   Charging more than the applicable cap forfeits double the interest the note carries or was agreed to pay, not just the excess above the cap. If the excess interest was already paid, the payer may recover double that amount, but only in a suit filed within 2 years of the payment and only after first making a written demand for its return. (Montana Code Annotated Section 31-1-108)

4. 4

   A Montana promissory note does not need to be notarized or witnessed to be enforceable. Montana Code Annotated Section 30-3-104 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.

5. 5

   A confession-of-judgment clause is illegal and void in Montana for any written contract creating a promise to pay money, including a promissory note, a rule dating to 1935. This holds even though Montana's own UCC negotiable-instruments statute separately lists a power to confess judgment as a type of clause a note can include without losing its negotiability; the UCC listing doesn't make the clause enforceable. (Montana Code Annotated Section 28-2-709; Section 30-3-104)

6. 6

   You generally have 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in Montana. (Montana Code Annotated Section 27-2-202)

7. 7

   If a Montana promissory note is secured by personal property, the lender generally needs to file a UCC-1 financing statement with the Montana Secretary of State to protect its priority against other creditors. Promissory notes are commonly used in Montana for family loans, small business loans, and LLC loans between members. (Montana Code Annotated Section 30-9A-310)

Montana Requirements for Promissory Note

• Maximum Legal Interest Rate (Montana Code Annotated Section 31-1-107)

  If fixed in writing, the rate may not exceed the greater of 15% per annum or 6 percentage points above the prime rate published in the Federal Reserve System's H.15 release for bank prime loans, measured 3 business days before signing. The default rate absent a written rate is 10% per annum (Section 31-1-106). A regulated lender, such as a bank or credit union, is exempt from the cap entirely (Section 31-1-112).

• Statute of Limitations (Montana Code Annotated § 27-2-202)

  Generally 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note.

• Notarization Not Required for Validity (Montana Code Annotated Section 30-3-104)

  Montana does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 30-3-104'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.

• Usury Penalty (Montana Code Annotated Section 31-1-108)

  Charging more than the applicable usury cap forfeits double the interest the note carries or was agreed to pay, not just the excess above the cap. If the excess interest was already paid, the payer may recover double that amount, but only in a suit filed within 2 years of the payment and only after first making a written demand for its return.

• Negotiability Requirements (Montana Code Annotated Section 30-3-104)

  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.

• Montana Consumer Loan Act Scope (Montana Code Annotated Section 32-5-103)

  Montana Consumer Loan Act licensing requirements apply only to a person engaged in the business of making consumer loans. A private lender who makes fewer than 4 consumer loans a year with their own funds and does not represent themselves as being in the lending business is not required to comply.

• Confession of Judgment Void (Montana Code Annotated Section 28-2-709)

  Any written contract creating a promise to pay money, including a promissory note, may not contain a provision empowering another person to confess judgment on a party's behalf; the provision is illegal, void, and unenforceable, a rule in place since 1935.

• Secured Transaction Filing (Montana Code Annotated Section 30-9A-310)

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