Below is an extensive, Philippine-focused discussion of Promissory Notes and Simple Loan Agreements (“mutuum”) from the standpoints of Remedial Law, Legal Ethics, and Legal Forms. This write-up includes key definitions, legal bases, formal and substantive requirements, practical considerations in drafting, strategies for enforcement, ethical responsibilities of lawyers, and sample templates.

I. OVERVIEW & DEFINITIONS

Promissory Note
- A promissory note is a written instrument containing an unconditional promise by one party (the maker) to pay a specific sum of money to another (the payee) either on demand or at a fixed or determinable future time.
- In the Philippines, promissory notes may be negotiable or non-negotiable. If the instrument contains all the requisites under the Negotiable Instruments Law (Act No. 2031), it is a negotiable promissory note. If it lacks any requirement, it remains valid as a simple contract but not as a negotiable instrument.
Simple Loan (Mutuum)
- A simple loan agreement (mutuum) is a contract where one party (the lender) delivers money or other consumable goods to the other (the borrower), who is obliged to pay the same amount of the same kind and quality.
- Governed mainly by the Civil Code of the Philippines (Articles 1933 to 1961), a simple loan is a real contract, perfected upon delivery of the thing loaned. Unlike a commodatum (where the borrowed thing must be returned in the same form), in a mutuum, the borrower must return the equivalent amount of the same kind and quality.
Distinguishing Promissory Notes from Simple Loan Agreements
- Form: A promissory note is commonly a single written document containing the promise to pay. A loan agreement may be more detailed, covering representations, warranties, interest, default, and other conditions.
- Negotiability: A promissory note may be negotiated (if it meets statutory requirements). A simple loan agreement is typically not a negotiable instrument.
- Perfection: A loan agreement is perfected upon delivery of the object of the loan. A promissory note may evidence an already perfected loan or a promise to pay an obligation in the future.

II. LEGAL BASES AND GOVERNING LAWS

Civil Code of the Philippines
- Articles 1933–1961: Primary provisions on mutuum, including how interest is regulated and how loans are to be repaid.
- Article 1159: Obligation to comply in good faith with the terms of a contract.
- Articles 1305–1430: General provisions on obligations and contracts.
Negotiable Instruments Law (Act No. 2031)
- Governs the form, requisites, negotiation, and enforcement of negotiable promissory notes.
- Requires, among others, an unconditional promise to pay a sum certain in money, signature of the maker, certainty as to the payee, and a definite time of payment (or on demand).
Usury Law (Act No. 2655, as amended) and Bangko Sentral ng Pilipinas (BSP) Circulars
- While the Usury Law’s interest ceilings have been effectively lifted, Philippine jurisprudence (e.g., Medel v. CA, Nacar v. Gallery Frames) holds that courts can reduce interest rates deemed unconscionable.
- If no interest rate is stipulated, the legal interest rate is 6% per annum (per current BSP circulars and Supreme Court rulings).
New Rules on Small Claims
- Under the Rule of Procedure for Small Claims Cases (as amended by A.M. No. 08-8-7-SC, and subsequent amendments), claims for money owed under a promissory note or simple loan of up to Php 1,000,000 (one million pesos) may be enforced through the simplified small claims procedure.
- This significantly reduces litigation time and costs.
Relevant Supreme Court Jurisprudence
- Nacar v. Gallery Frames, 716 SCRA 168 (2013): Clarified legal interest rates for judgments.
- Medel v. CA, 299 SCRA 481 (1998): Courts may equitably reduce excessive interest rates.
- Development Bank of the Philippines v. Perez, G.R. No. 176200 (2013): Reminds that interest must be clearly stipulated and not left to unsubstantiated unilateral impositions.

III. ELEMENTS & ESSENTIAL CLAUSES

A. For Promissory Notes

Title: “Promissory Note”
Date and Place of Execution
Parties: Maker(s) and Payee(s)
Promise to Pay: Clear, unconditional promise
Amount: Specific sum in Philippine currency (or foreign currency subject to exchange rules)
Due Date or Demand Clause: A statement of when payment is due—on demand, at maturity date, or in installments.
Interest Rate (if any): Must be clearly stated; otherwise, legal interest applies.
Default and Acceleration Clause (optional, but common): If the maker defaults, the entire unpaid balance becomes due.
Penalty Clause (optional): Additional charge if payment is late. Courts may reduce if unconscionable.
Signature of Maker (and possibly witnesses).
Acknowledgment (notarization recommended, though not strictly required for validity; advisable for evidentiary weight).

B. For Simple Loan Agreements (Mutuum)

Title: “Loan Agreement” or “Simple Loan Agreement”
Date and Place of Execution
Parties: Lender (Creditor) and Borrower (Debtor)
Recitals: Background or purpose of the loan, if relevant
Principal Amount: The loan amount and currency
Delivery or Release of Funds: Date/ manner of disbursement (e.g., lump sum, tranches)
Term / Maturity: Period for repayment
Interest Clause (if applicable): Stipulated interest rate, date from which interest shall run, and manner of payment
Repayment Schedule: Lump sum, monthly installments, balloon payment, etc.
Security / Collateral (if any): If the loan is secured by a mortgage, pledge, or other form of security, the agreement should refer to the separate security document(s).
Default Provisions and Remedies: Consequences of non-payment, acceleration of the balance, penalty interest, attorney’s fees.
Governing Law: Typically Philippine law.
Dispute Resolution: Courts of the Philippines, or an arbitration clause (if desired).
Signatures and Notarial Acknowledgment: Notarization recommended for evidentiary strength and to bind third parties.

IV. PRACTICAL CONSIDERATIONS & DRAFTING TIPS

Clarity & Precision
- Use plain language. Avoid vague terms that might lead to ambiguities and disputes.
Interest Rate
- Clearly stipulate. Courts generally uphold interest rates unless excessive or unconscionable. If not stipulated, interest cannot be demanded until there is default, unless there is an agreement or usage to that effect.
- If you agree to an interest rate, consider referencing the basis (e.g., per annum).
Penalties, Attorney’s Fees, and Liquidated Damages
- A penalty clause is enforceable under the Civil Code, but courts may reduce it if it is iniquitous.
- Stipulate the exact circumstances that trigger penalties.
- Reasonable attorney’s fees (often from 10%–25% of the unpaid amount) are typically allowed.
Notarization
- While a promissory note or loan agreement is valid even without notarization, notarization affords extra legal protection:
  - Confers a public document status, making the note self-authenticating in court.
  - Helps deter fraud.
Document Retention and Evidence
- Keep original signed copies.
- Retain proof of the actual delivery of the loan proceeds (e.g., deposit slips, checks, receipts). This is crucial in proving the existence of a real contract of loan.
Small Claims Option
- If the principal plus interest and penalties do not exceed Php 1,000,000, the lender may file a Small Claims case with the Metropolitan Trial Court or Municipal Trial Court.
- No need for an attorney’s appearance; the rules are simplified, and the case is typically resolved within a shorter period.
Renegotiation & Restructuring
- If the borrower faces financial difficulty, consider restructuring the loan (e.g., adjusting the interest rate, extending the maturity) to avoid protracted litigation.

V. REMEDIAL LAW: ENFORCEMENT AND COLLECTION

Judicial Demand
- Upon default, the lender can file a civil action for sum of money (ordinary court action or small claims, depending on the amount).
- If the note or agreement is negotiable and was endorsed, the holder in due course may benefit from certain protections under the Negotiable Instruments Law.
Small Claims Procedure
- If the claim is <= data-preserve-html-node="true" Php 1,000,000, the lender can file under the small claims procedure.
- No lawyers are allowed to represent either party, and the decision is generally rendered on the day of hearing.
Provisional Remedies
- Attachment (Preliminary Attachment): If the borrower is about to fraudulently dispose of property, the lender can move for a writ of attachment to secure the claim.
- Replevin: Not applicable to a purely monetary claim, but if a separate contract of pledge or mortgage exists, foreclosure or extrajudicial remedies may also be invoked.
Execution of Judgment
- If the lender obtains a favorable judgment, enforcement follows under Rule 39 of the Rules of Court through writs of execution or garnishment of assets.
Prescription of Actions
- Generally, actions based on written contracts prescribe in ten (10) years from the time the right of action accrues (Article 1144, Civil Code).
- For oral contracts, prescription is six (6) years.
- Parties should be mindful of these periods to avoid losing their right to enforce.

VI. LEGAL ETHICS CONSIDERATIONS

Duty of Candor and Good Faith
- Lawyers drafting promissory notes or loan agreements must ensure that the contract reflects the genuine intention of the parties.
- Under the Code of Professional Responsibility, a lawyer should not engage in dishonest, deceitful transactions or facilitate exploitative interest rates.
Avoiding Conflicts of Interest
- If a lawyer represents the lender, they cannot simultaneously represent the borrower in the same transaction.
- Full disclosure is essential if the lawyer is also a principal (e.g., the lender).
Fair Dealing and Confidentiality
- Lawyers must keep their client’s interests paramount and maintain confidentiality of the client’s financial details.
Notarization and the Notary Public
- The lawyer-notary must comply with the 2019 Revised Rules on Notarial Practice.
- Due diligence in verifying the identity of signatories, ensuring the voluntary nature of their signatures, and verifying that they understand the contents of the instrument.
Preventing Unconscionable Transactions
- Though there is no longer a fixed legal cap on interest rates, a lawyer should advise the client against imposing interest rates that the courts would likely strike down as “excessive” or “unconscionable.”
- This is consistent with the duty to uphold justice and fairness.

VII. SAMPLE TEMPLATES

A. Simple Promissory Note (Non-Negotiable)

PROMISSORY NOTE

KNOW ALL MEN BY THESE PRESENTS:

I, __________________ (Name of Maker), of legal age, Filipino, with residence address at __________________, hereby PROMISE TO PAY on demand to __________________ (Name of Payee), Filipino, with residence/business address at __________________, the sum of __________________ (Php ________), Philippine currency, without interest / with interest at the rate of ____% per annum starting on _____________ until fully paid.

In case of default, I agree to pay a penalty fee of ______% per month on the unpaid principal, as well as attorney’s fees equivalent to ______% of the total amount due in the event this note is referred to a lawyer for collection, plus costs of suit and other expenses.

Signed this ____ day of __________, 20___, in _________________, Philippines.

__________________________
(Signature of Maker)
(Name in Print)

WITH MY CONFORME:

__________________________
(Signature of Witness/Co-Maker, if any)
(Name in Print)

Notarization Acknowledgment (if desired)

B. Simple Loan Agreement (Mutuum)

SIMPLE LOAN AGREEMENT

This Agreement made and executed on this ____ day of __________, 20___, in ____________, Philippines, by and between:

__________________ (Name of Lender), of legal age, Filipino, with address at _____________, hereinafter referred to as the “LENDER”,

-and-

__________________ (Name of Borrower), of legal age, Filipino, with address at _____________, hereinafter referred to as the “BORROWER”,

WITNESSETH THAT:

1. LOAN AMOUNT AND PURPOSE
   1.1 The LENDER hereby grants the BORROWER a loan in the principal amount of __________________ Pesos (Php ________) (“Loan”), for the purpose of __________________.

2. RELEASE OF LOAN
   2.1 The LENDER shall release the Loan proceeds in one lump sum / multiple tranches, as follows:
       - Date(s) of release: ____________________
       - Mode of release: ______________________

3. INTEREST
   3.1 The Loan shall bear interest at the rate of ____% per annum computed from the date of release until fully paid, payable (monthly/quarterly/annually).

4. REPAYMENT TERMS
   4.1 The BORROWER shall repay the Loan principal together with accrued interest in (equal monthly installments / lump sum) beginning on __________ and every ______________ thereafter until the full amount is paid, with the final due date on __________.

5. PENALTIES AND DEFAULT
   5.1 In case of default in payment of any installment, the entire remaining balance, including accrued interest and penalties, shall become due and demandable.
   5.2 A penalty fee of ____% per month shall be imposed on any overdue amount from the date of default until fully paid.

6. ATTORNEY’S FEES AND COSTS
   6.1 If the LENDER refers this matter to a lawyer for collection or legal action, the BORROWER shall pay attorney’s fees equivalent to ____% of the total amount due, in addition to costs of litigation and other expenses.

7. GOVERNING LAW AND VENUE
   7.1 This Agreement shall be governed by Philippine law.  
   7.2 In case of litigation, the competent courts of ____________ shall have exclusive jurisdiction.

8. ENTIRE AGREEMENT
   8.1 This Agreement constitutes the entire agreement between the parties. No other agreements, representations, or warranties shall be binding unless reduced to writing and signed by both parties.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures this ____ day of __________, 20___, in ___________, Philippines.

__________________________                 __________________________
(Signature over Printed Name)             (Signature over Printed Name)
LENDER                                     BORROWER

Signed in the presence of:

__________________________                 __________________________
(Signature of Witness)                     (Signature of Witness)

Notarization Acknowledgment clause follows.

VIII. CONCLUSION

Promissory Notes and Simple Loan Agreements are foundational instruments in everyday commercial and personal transactions in the Philippines. While they may appear straightforward, meticulous drafting ensures clarity, enforceability, and the avoidance of future disputes. Key points include:

Accurate and Complete Clauses: Spell out interest, default remedies, and penalties carefully.
Compliance with Law and Ethics: Uphold legal standards (e.g., on unconscionable interest) and ethical obligations (transparency, fairness).
Practical Enforcement: Familiarize yourself with small claims procedures for amounts within jurisdictional limits, and be prepared to use provisional remedies if needed.
Notarization and Documentation: Strengthen legal effect and evidentiary value by notarizing the instrument and retaining all supporting documents.

When properly prepared and executed, these instruments serve as strong evidence of an obligation, streamline collection, and protect the rights of the parties under Philippine law.