Washington 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

   Washington caps interest on a written note at the higher of 12% per annum or 4 percentage points above the yield on 26-week Treasury bills at the most recent auction (Washington Revised Code Section 19.52.020). A loan made primarily for a business, agricultural, commercial, or investment purpose can't raise a usury defense at all; that carve-out doesn't apply to a consumer loan made primarily for personal, family, or household purposes (Washington Revised Code Section 19.52.080).

3. 3

   Charging above the cap doesn't void the note. Instead, in a lawsuit on the note, the creditor recovers only the principal minus twice the interest already paid, and the debtor recovers costs and reasonable attorney's fees plus whatever was overpaid. (Washington Revised Code Section 19.52.030)

4. 4

   A Washington promissory note does not need to be notarized or witnessed to be enforceable. Washington Revised Code Section 62A.3-104, Washington's version of Uniform Commercial Code Article 3, 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

   Washington permits a confession-of-judgment clause (letting the payee seek a court judgment without a full lawsuit), but acting on one takes more than a signature on the note itself: Washington Revised Code Chapter 4.60 requires a separate written statement, signed by the maker and verified under oath, submitted to and approved by a superior court judge before the clerk can enter judgment.

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 Washington, running from the breach rather than the date the note was signed. (Washington Revised Code Section 4.16.040)

7. 7

   If a Washington note is secured by personal property, the lender generally needs to file a UCC-1 financing statement to protect its priority against other creditors, and unlike most states, that filing goes to the Washington Department of Licensing rather than the Secretary of State (Washington Revised Code Section 62A.9A-310). Promissory notes are commonly used in Washington for family loans; Washington's Consumer Loan Act licensing rules exempt a person lending to an immediate family member from the licensing requirement that otherwise applies to businesses in the lending trade (Washington Revised Code Section 31.04.035).

Washington Requirements for Promissory Note

• Note Must Be Written and Signed (Washington Revised Code Section 19.36.010)

  Washington's statute of frauds requires certain promises to be in writing and signed by the party to be charged. Notarization is not a validity requirement for a promissory note in Washington.

• Maximum Legal Interest Rate (Washington Revised Code Section 19.52.020)

  The rate on a written note may not exceed the higher of 12% per annum or 4 percentage points above the equivalent coupon issue yield on 26-week Treasury bills at the most recent auction. A loan primarily for a business, agricultural, commercial, or investment purpose cannot support a usury defense at all (Washington Revised Code Section 19.52.080).

• Negotiable Instruments Requirements (RCW 62A.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. Notarization is not one of the requirements.

• Statute of Limitations (RCW 4.16.040)

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

• Confession of Judgment Permitted With Formalities (Washington Revised Code Chapter 4.60)

  Washington allows confession of judgment, but it requires a separate written statement, signed by the maker and verified under oath, approved by a superior court judge before the clerk can enter judgment. A confession-of-judgment clause in the note itself is not self-executing.

• Consumer Loan Act (RCW 31.04)

  A person must generally hold a Consumer Loan Act license to engage in the business of making loans, but Washington Administrative Code rules exempt a person lending to an immediate family member, and a person financing the sale of their own home, from that licensing requirement.

• Usury Penalty on Overcharge (Washington Revised Code Section 19.52.030)

  An overcharge does not void the note. The creditor recovers only the principal minus twice the interest already paid, and the debtor recovers costs and reasonable attorney's fees plus any amount overpaid beyond what the creditor is entitled to.

• Secured Transaction Filing (Washington Revised Code Section 62A.9A-310)

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