Tennessee 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 signed written promissory note, Tennessee's interest-rate cap is the "formula rate," announced weekly by the Commissioner of Financial Institutions: 4 percentage points above the average prime loan rate the Federal Reserve most recently published. As of the most recent announcement, the published rate is 10.75% per annum. Confirm the current week's published rate before setting a note's interest rate. (Tenn. Code Ann. Sections 47-14-102, 47-14-103, 47-14-105)

3. 3

   The formula rate is capped at 24% per annum if Federal Reserve prime-rate data ever stops being published or the formula becomes inapplicable. For a transaction without a signed written interest rate, the maximum is 10% per annum instead of the formula rate. Confirm the current statute before relying on either figure. (Tenn. Code Ann. Section 47-14-102(7), Section 47-14-103(3))

4. 4

   A Tennessee promissory note does not need to be notarized or witnessed to be enforceable. Tennessee Code Section 47-3-104 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 (a clause letting the payee get a court judgment without a full lawsuit) is void if the maker agrees to it before a lawsuit is filed and served. It can only be used if agreed to after a lawsuit over the note has already been filed and the maker served with it. (Tenn. Code Ann. Section 25-2-101)

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 Tennessee. If the note is payable on demand rather than by a due date, the period is 10 years instead. Confirm the current statute before relying on either figure. (Tenn. Code Ann. Section 28-3-109)

7. 7

   If a Tennessee promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement with the Tennessee Secretary of State to protect its priority against other creditors. The filing is effective for 5 years and can be renewed with a continuation statement. (Tenn. Code Ann. Section 47-9-310)

Tennessee Requirements for Promissory Note

• Maximum Legal Interest Rate (Tennessee Code Annotated Section 47-14-103)

  For a signed written promissory note, the cap is the "formula rate" announced weekly by the Commissioner of Financial Institutions (4 percentage points above the most recently published average prime loan rate; published at 10.75% per annum as of the most recent announcement). For a transaction without a signed written rate, the maximum is 10% per annum; confirm the current statute before relying on this figure.

• Formula Rate Ceiling and Weekly Publication (Tennessee Code Annotated Sections 47-14-102, 47-14-105)

  The formula rate is capped at 24% per annum if Federal Reserve prime-rate data ever stops being published. The Commissioner of Financial Institutions must announce the current formula rate weekly; confirm the current rate before drafting a note's interest-rate term.

• Negotiability Requirements (Tennessee Code Annotated Section 47-3-104)

  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 (Tenn. Code Ann. § 28-3-109)

  Generally 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note; 10 years instead if the note is payable on demand. Confirm the current statute before relying on either figure.

• Notarization Not Required for Validity (Tennessee Code Annotated Section 47-3-104)

  Tennessee does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 47-3-104'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.

• Secured Transaction Filing (Tennessee Code Annotated Section 47-9-310)

  If a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the Tennessee Secretary of State to perfect and prioritize its security interest, effective for 5 years and renewable with a continuation statement.

• Industrial Loan and Thrift Registration Scope (Tennessee Code Annotated Section 45-5-103)

  Registration with the Commissioner of Financial Institutions under the Industrial Loan and Thrift Companies Act is required only for a person engaged in business as an industrial loan and thrift company. An isolated private person-to-person promissory note does not, by itself, trigger this requirement.

• Confession of Judgment Restricted (Tennessee Code Annotated Section 25-2-101)

  A confession-of-judgment clause agreed to before a lawsuit is filed and the maker served is void. A promissory note drafted at signing should not include an enforceable confession-of-judgment clause; the clause only works if agreed to after litigation on the note has already begun.