LETTER FROM A CONCERNED INDIVIDUAL

Dear Attorney,

Greetings! I hope this letter finds you in good health and spirits. I am writing to seek your guidance regarding the legal implications of a promissory note. Specifically, I would like to know whether a promissory note remains valid and enforceable even if it is not notarized. I understand how critical these documents can be in business and personal transactions alike, and I would be grateful for your expert insights on how Philippine law treats unnotarized promissory notes.

Thank you for your time and expertise. I truly appreciate any information you can provide on this matter.

Sincerely,
A Concerned Individual

LEGAL ARTICLE ON PROMISSORY NOTES IN THE PHILIPPINES

1. Introduction to Promissory Notes
A promissory note is a legally recognized instrument in the Philippines, signifying a promise by one party (the maker or issuer) to pay a certain sum of money to another (the payee or holder) at a specified future date or on demand. This important document underpins countless commercial and personal transactions, functioning much like an “IOU” that memorializes an obligation to pay. In general, Philippine law treats promissory notes under the broader umbrella of negotiable instruments, and crucial rules can be found in the Negotiable Instruments Law (Act No. 2031). However, there are also nuances and local practices that can affect enforceability, particularly in the context of notarization, prescription, and the proof of due execution.

2. General Legal Framework
The Negotiable Instruments Law in the Philippines regulates different types of negotiable instruments, including promissory notes. A promissory note must typically contain the following elements to be considered valid under this law:

An unconditional promise to pay a specific amount of money;
Name of the person to whom payment is to be made, or a statement indicating it is payable to the bearer;
Signature of the maker or issuer;
A clear indication of the amount due; and
A specified maturity date or a stipulation that it is payable on demand.

While promissory notes are “negotiable” if they comply with the statutory requirements, there may be instances where the note is deemed non-negotiable if certain formalities are not met. Nonetheless, even if deemed non-negotiable, it can still serve as evidence of an obligation or personal contract between parties.

3. Notarization: Purpose and Effect
Notarization in the Philippines primarily serves several purposes. First, it raises a document to the status of a public instrument, making it admissible in evidence without the need for additional proof of due execution. Second, it helps curb fraudulent activities, as it compels the parties to personally appear before the notary public, verifying their identities and affirming that they signed the document willingly. Third, for certain documents and contracts—such as deeds of sale of real property—Philippine laws specifically require notarization as a condition for validity or registrability.

However, unlike some contracts and documents that mandate notarization for their enforceability (e.g., donation of real property, certain powers of attorney, and real estate mortgages), a promissory note does not generally require notarization to be valid. A promissory note is fundamentally a private contract between the maker and payee; so long as it contains all the essential elements of a valid contract, it can be enforceable even absent a notarial seal.

4. Is Notarization Required for Validity?
Under Philippine law, a promissory note can be valid and binding even if it is not notarized, as long as it meets the basic requirements of a contract: consent, object, and consideration. If all the elements and requisites of a valid obligation are present, the note is deemed valid. Notarization acts primarily as an added layer of evidence that the person signing the note did so voluntarily and that the signatures on the document are authentic. Yet, absence of notarization does not necessarily invalidate a promissory note. It might simply be a question of the evidentiary weight accorded to the instrument in court proceedings.

Nonetheless, having a note notarized can be advantageous if the maker later contests the validity of his or her signature or claims that the agreement was forged or involuntary. A public instrument (i.e., a document notarized in accordance with the legal requirements) benefits from a presumption of regularity, which can shift the burden of proof to the party challenging it. Without notarization, the note still has probative value but may require further testimony or corroboration to establish its authenticity in a judicial forum.

5. Negotiable vs. Non-Negotiable Instruments
While the Negotiable Instruments Law sets standards for negotiability, the personal aspect of a promissory note should not be overlooked. A promissory note lacking certain features (such as negotiability terms or “order/bearer” language) may not be deemed negotiable, but it could still be enforceable as a contract between the parties. For instance, if the maker has unconditionally promised to pay the payee a definite sum of money on a specified date, or upon demand, and both parties have consented, the instrument can be considered binding under general contract laws.

Regardless of negotiability, what primarily matters is whether the promisor’s obligation is clearly set forth. If it is, and all elements of a valid obligation are present, the document is enforceable. Hence, even an unnotarized, non-negotiable instrument can validly serve as evidence of a debt or liability in a legal proceeding.

6. Evidentiary Value in Court
When a promissory note is presented as evidence in court, especially in collection suits or claims for sum of money, the best scenario is having the note notarized. A notarized document is presumed to be executed by the person who affixed his or her signature, in the presence of a notary public, who has verified the identity and capacity of the person signing. Hence, if the validity of the promissory note is contested, the proponent enjoys a stronger presumption of authenticity.

That said, an unnotarized promissory note can still be accepted and recognized by Philippine courts if it can be shown, by other evidence, that the maker did indeed sign the instrument and was bound by its terms. For instance, witness testimony, admissions by the debtor, or other documentary evidence can corroborate the existence and due execution of the promissory note. Ultimately, it is the court’s discretion whether to credit the unnotarized note, provided that the proponent meets the relevant rules and standards of evidence.

7. Practical Concerns and Best Practices
Even though the law generally deems an unnotarized promissory note enforceable, it remains prudent to consider certain best practices to minimize legal disputes:

Clear, Unambiguous Terms: The promise to pay should be explicitly stated, setting forth the precise amount due, the date or conditions under which payment becomes due, the rate of interest if any, and the consequences of default.
Signatures of the Parties: Ensure that the maker and payee sign the note and, if possible, include witnesses to further support its authenticity.
Identification of Parties: Accurately identify the maker, including addresses or other contact details, so that there is no confusion about the obligor’s identity.
Notarization (If Feasible): While not strictly necessary, notarization remains advisable, especially for higher-value transactions. Doing so can help avert unnecessary legal challenges later.
Retention of Original Copy: Safeguard the original copy of the promissory note; in litigation, courts generally prefer to see the original rather than photocopies.

8. Enforcement of Promissory Notes
Promissory notes, whether notarized or not, can be enforced through judicial proceedings if the maker fails to fulfill his or her obligation. Typically, the payee or holder of the note may file a civil action (e.g., a collection suit) in the proper court. The plaintiff (the party seeking payment) must prove:

The existence and execution of the promissory note;
The defendant’s obligation under the note; and
The defendant’s default in payment.

If the court finds the promissory note valid and binding, and no viable defenses are raised, it will issue a judgment requiring the maker to pay the outstanding obligation (plus interest, if applicable) and potentially other costs or damages as allowed by law.

9. Defenses Against Enforcement
Even if a promissory note appears facially valid, the maker or issuer may raise specific defenses to defeat enforcement or reduce liability:

Lack of Consideration: Arguing that no actual consideration was given for the note, or that it was signed under duress or fraud.
Forgery: Claiming the signature was forged, if there is credible evidence to support that claim.
Payment or Partial Payment: Proving that the debt has already been paid, in whole or in part.
Prescription: Asserting that the action to collect on the promissory note is barred by the statute of limitations, depending on how much time has passed since the cause of action accrued.

Where a defense is found meritorious, the court may render the promissory note unenforceable or partially enforceable depending on the circumstances. Notarization, while adding to the note’s evidentiary weight, does not necessarily preclude legitimate defenses.

10. Statute of Limitations (Prescription)
Philippine laws set certain periods within which a creditor or payee must institute an action to collect a debt based on a promissory note. The applicable rule typically is that an action to recover a sum of money based on a written contract, such as a promissory note, prescribes in ten (10) years from the time the right of action accrues. However, if the note is payable on demand, the prescriptive period usually begins when a demand is made, or after a reasonable time from the issuance if no demand is ever made. It is crucial for both the maker and the payee to keep track of these time frames, as failure to file a lawsuit within the prescriptive period can bar the claim altogether.

11. Application of Interest and Usury Laws
A promissory note can stipulate interest, which the debtor must pay in addition to the principal amount. In the Philippines, there is technically no longer a fixed usury rate, as the Usury Law has been effectively suspended. However, courts still have the power to reduce exorbitant or unconscionable interest rates. If the promissory note specifies an unusually high rate, it may be subject to judicial scrutiny and possible downward adjustment. The courts will look into whether the rate is so excessive that it oppresses the debtor and contravenes moral or public policy standards.

12. Role of Banks and Financial Institutions
Banks and other financial institutions in the Philippines often rely on promissory notes to formalize loans granted to customers. In such cases, additional contract documents (e.g., loan agreements, real estate mortgages, chattel mortgages) may supplement or secure the promissory note. Although a bank or lending institution may require notarization of the note (or related collateral agreements), it is generally for risk management and procedural reasons, not strictly because the law mandates it for validity. These institutions typically have standard forms that incorporate all essential terms, interest rates, penalties, and the borrower’s or guarantor’s obligations.

13. Promissory Notes in Business and Personal Transactions
In commercial practice, businesses and even private individuals use promissory notes for a variety of reasons: short-term financing, acknowledging unpaid balances, or restructuring existing debts. The advantage lies in having a clear, unequivocal document that establishes a debt. This reduces confusion or disputes that might arise if the parties rely solely on oral agreements. Even in personal relationships—such as among family members or friends—drafting a promissory note can help maintain a clear record of the transaction, encouraging timely repayment and minimizing disagreements.

While a promissory note can be relatively simple, parties should avoid overly casual or vague language. Clarity in drafting prevents misunderstandings and helps courts (if litigation arises) interpret the document according to the parties’ true intentions. In each scenario, notarization serves as a safeguard but is not a legal requirement for the note’s intrinsic enforceability.

14. Legal Remedies and Procedures
When a debtor fails to pay on a promissory note, the creditor’s typical course of action is to send a demand letter reminding the debtor of the outstanding obligation. If the debtor still refuses to pay, litigation may ensue. The creditor will file a complaint in the relevant trial court, attaching the promissory note as evidence. In response, the debtor may present defenses or attempt to negotiate a settlement. If the court deems the note enforceable and untainted by vitiating elements (fraud, duress, lack of consideration, or prescription), it will issue a judgment directing the debtor to settle the debt.

Furthermore, a final and executory judgment can be enforced through execution proceedings, whereby the judgment creditor can levy on the debtor’s non-exempt assets to satisfy the unpaid obligation. Hence, it is vital for makers to honor the terms of their promissory notes, while payees should preserve all relevant documentation to ensure a successful collection case if it becomes necessary.

15. Importance of Good Faith and Fair Dealing
In the Philippine legal system, contracts—including promissory notes—are interpreted according to the intent of the parties, guided by principles of good faith and fair dealing. Courts will look into the entirety of the transaction, the surrounding circumstances, and the conduct of the parties when assessing whether to enforce or modify the provisions of a promissory note. If one party is found to have acted in bad faith (for instance, hiding crucial terms or forcing the other party to sign under duress), the note’s enforceability may be compromised or even nullified. Conversely, when parties enter freely and knowingly into a promissory note, it becomes a lawful agreement whose obligations are binding and enforceable.

16. Practical Tips for Drafting Promissory Notes

Use Clear Language: Avoid technical jargon if unnecessary. The essential terms (amount, interest, due date) should be conspicuous and comprehensible.
Identify the Parties Properly: Include legal names, addresses, and contact details to prevent ambiguities.
Specify Mode of Payment: Whether it is a lump-sum payment, installments, or a combination thereof, spell out the payment structure to avoid confusion.
Include an Acceleration Clause: This clause makes the entire obligation due immediately if there is a default on one installment, incentivizing timely payments.
Consider a Default Interest Rate: If you wish to impose a higher rate upon default, ensure the rate is reasonable to avoid potential judicial reduction.
Contemplate Attorney’s Fees: If you expect to incur legal expenses in case of default, consider adding a clause for attorney’s fees, subject to the court’s approval of its reasonableness.

17. Impact of COVID-19 Pandemic and Other Crises
Recent events, including the COVID-19 pandemic, have heightened awareness of contract terms and obligations. In some cases, parties have argued force majeure or other external circumstances to extend payment deadlines or renegotiate the terms of promissory notes. While such claims may be valid if the contract expressly contemplates them, courts generally approach force majeure defenses with caution, especially if payment of money is the only obligation (as monetary obligations are usually not excused by force majeure alone).

Nonetheless, if the parties agree to modify or restructure an existing promissory note due to extraordinary circumstances, they may do so by executing an amendment or a new note, with or without notarization, provided that all the formalities for a valid agreement are met.

18. Consequences of Non-Payment
Failure to honor a promissory note can lead to financial and legal repercussions. Aside from accruing interest and potential penalties, a defaulting debtor risks damaging business or personal relationships, facing lawsuits, incurring court expenses, and possibly having assets garnished or attached to fulfill a court-issued judgment. Repeated defaults can also negatively impact one’s creditworthiness and reputation, making it harder to secure future loans or credit lines.

Parties should always weigh these consequences when deciding whether to ignore, dispute, or promptly settle a due promissory note. Engaging in open communication and seeking to negotiate acceptable payment arrangements is often a wiser approach than allowing a dispute to escalate to litigation.

19. Alternative Dispute Resolution
Given the cost and time involved in court proceedings, disputing parties may consider alternative modes of dispute resolution (ADR), such as mediation or arbitration. For instance, if the promissory note contains an arbitration clause or if the parties mutually agree to submit to mediation, they can explore a more expeditious and potentially less adversarial settlement process. While still requiring proof of the debt and its terms, these methods can help preserve relationships and minimize legal expenses. The use of ADR does not negate the validity of the promissory note itself; rather, it simply channels the resolution process through a different, usually more informal, mechanism.

20. The Importance of Legal Counsel
In complex transactions or where large sums of money are involved, seeking independent legal counsel is advisable. A competent attorney can help draft a promissory note tailored to the specific transaction, ensuring that the note is not only valid under Philippine law but also optimally protects the interests of the payee (or clarifies the obligations of the maker). Legal advice can also clarify whether certain clauses—such as acceleration, default interest, or guaranties—are acceptable, enforceable, and properly documented. For collection matters, legal representation can streamline the process, from sending a formal demand letter to instituting a lawsuit if necessary.

21. Summary of Key Points

Validity Without Notarization: A promissory note can be valid and enforceable even if unnotarized, as long as it meets the elements of a contract.
Presumption of Regularity: A notarized note enjoys stronger presumptive validity, potentially easing the burden of proof in court.
Negotiable Instruments Law: The note may fall under the Negotiable Instruments Law if it meets the elements of negotiability, but even non-negotiable notes can be binding as private contracts.
Evidentiary Weight: Unnotarized notes remain admissible in court but might require additional proof of authenticity.
Defenses: Common defenses include lack of consideration, fraud, forgery, prescription, and partial or full payment.
Practicality: Clear drafting, proper signatures, and, when prudent, notarization, are all best practices to avoid or minimize disputes.

22. Conclusion
In the Philippine legal landscape, a promissory note is a versatile tool for documenting financial obligations between parties. Although notarization is not a strict legal requirement for validity or enforceability, it offers important benefits such as bolstering the note’s evidentiary strength and helping deter potential fraud. Whether used in business or personal transactions, a well-drafted promissory note can save all involved parties from confusion and disagreements down the line.

Ultimately, the question “Is a promissory note valid even if it is not notarized?” has a simple legal answer: Yes, it generally remains valid. However, the practical wisdom is that notarizing such an instrument often serves as a cost-effective form of legal protection and may significantly ease the burden of proving its authenticity in court. As with all matters of importance, consulting a qualified attorney is advisable to ensure that any promissory note—particularly those involving large sums—complies with legal requirements and adequately safeguards one’s rights and interests.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice. For specific concerns regarding your personal situation or any promissory note transactions, please consult an independent legal professional who can assess your circumstances in detail.